(This is a repeat of an item issued on Thursday)
* GRAPHIC: China LNG imports vs. spot price: tmsnrt.rs/2na9MFw
LAUNCESTON, Australia, Oct 3 (Reuters) - Liquefied natural gas (LNG) won’t enjoy its customary winter boost in Asia this year, and the seasonal swings in prices may well be a thing of the past as new supply and a steadier China demand profile dampen volatility.
The forward curve for LNG futures isn’t quite as flat as a pancake, but it certainly suggests that the northern winter price spike seen in seven of the last eight northern winters will be absent this year.
Chicago Mercantile Exchange contracts based on the Asian benchmark spot price, the Japan/Korea Marker compiled by S&P Global Platts, show a winter price peak of $7.02 per million British thermal units (mmBtu) for February cargoes, as of the close of trade on Wednesday.
This compares to $5.71 per mmBtu for the front-month November contract, $6.45 for December, and $6.98 for January.
After the February peak implied by the futures, prices moderate again, with the March contract at $6.70 per mmBtu, April at $6.12 and May at $5.99.
The modest uptick in expected prices for the northern winter stands in contrast to prior years, when Asian spot prices LNG-AS have surged during the colder period.
For example, in the winter of 2017/18, the spot price more than doubled from a low of $5.40 per mmBtu in June 2017 to a peak of $11.50 in January 2018.
However, the increasing supply from new LNG trains in Australia and the United States started to alter that dynamic in 2018/19, with the spot price peaking in June that year amid summer power demand, with only a minor lift ahead of winter and a seasonal peak in November.
The last of eight new LNG projects built over the past decade in Australia has started, making it the world’s top exporter, overtaking Qatar.
The United States has also been ramping up output, with three new plants starting this year and several expected to start operations later this year or early in 2020.
CHINA’S STRUCTURAL SHIFT
The other major factor has been both a slowing and a smoothing of growth in LNG in China, which in 2018 overtook South Korea as the second-biggest importer of the super-chilled fuel, behind Japan.
China imported 42.9 million tonnes of LNG in the first nine months of the year, according to vessel-tracking and port data compiled by Refinitiv.
Assuming this pace is maintained for the rest of the year, China will import a total of about 57.2 million tonnes for 2019.
This would actually be a modest 6.3% gain on the 53.8 million tonnes imported for the whole of 2018, although there is a possibility that imports of the fuel increase in the last quarter to meet winter demand.
However, even with a strong fourth quarter, it seems China’s LNG demand growth will be considerably lower in 2019 than it was in 2017, when it jumped 48% on the year, and in 2018, when it increased by 41%.
However, it is worth noting that LNG imports were exceptionally strong in the November to January period in 2018/19, setting three consecutive monthly records.
The question for the LNG market is whether China is likely to once again experience a surge in demand in the winter months, or whether the relatively stable monthly volumes of imports since the January peak will continue over the coming winter.
Certainly, it appears that Beijing’s campaign for better air quality will continue this winter, and further coal-to-natural gas switching in residential heating and industry is likely.
But it also appears China is managing its natural gas supply and demand better, with new storage available to smooth out seasonality, as well as increased domestic output.
This increases the risk there will not be a seasonal lift in the demand in China, meaning that spot prices are likely to struggle to reach even the modest gains implied by the CME forward curve. (Editing by Clarence Fernandez)
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