Column: Soft China LNG demand outweighs Freeport outage concerns

Liquified natural gas (LNG) storage tanks are seen at PetroChina's receiving terminal in Dalian
Liquified natural gas (LNG) storage tanks are seen at PetroChina's receiving terminal in Dalian, Liaoning province, China July 16, 2018. REUTERS/Aizhu Chen

LAUNCESTON, Australia, June 14 (Reuters) - The spot price of liquefied natural gas (LNG) in Asia has largely shrugged off an outage at a major U.S. export plant, amid signs that demand in the world's top-importing region remains tepid.

The explosion and subsequent shutdown at Freeport LNG's Texas plant, which provides about 20% of U.S. LNG export capacity, was tipped to boost both LNG prices to Asia and Europe amid concerns over supply. read more

But the June 8 blast only led to a little bump up in spot Asian prices, with New York-traded contracts linked to the benchmark S&P Global Commodity Insights JKM price rising 1.7% to $23.16 per million British thermal units (mmBtu) on June 9, the day after the incident.

The contract has since dropped back to $23.04 per mmBtu at the close on Monday.

European benchmark natural gas contracts had a more animated reaction to the Freeport outage, jumping 7.4% on June 9 to end at 84.65 euros per megawatt hour, although they slipped back to end at 84.20 on Monday.

The Freeport plant usually ships more LNG to Asia than to Europe, which may initially seem at odds with the price reaction, but the market took the view that the outage may result in Asian buyers seeking alternative supplies from the United States, which may draw cargoes from other plants away from Europe.

However, there are also some signs that Asia's demand for spot LNG remains muted. Refinitiv data showing the volume of cargoes discharged so far in June points to a drop in imports for the month compared to those in May, and in June 2021.

A total of 7.76 million tonnes of the super-chilled fuel was discharged at Asian ports in the first 13 days of June, a rate which if maintained for the rest of the month will put the region's imports at around 17.9 million tonnes.

This would be short of the 21.07 million tonnes that Asia imported in May and the 21.59 million in June last year.

Even allowing for some pick-up in the pace of imports in the second half of June, it's unlikely that Asia's imports will show any growth.

The sluggish demand for LNG in Asia is largely a China story, with just 1.79 million tonnes discharged in the first 13 days of June, according to Refinitiv.

China overtook Japan last year to be the world's biggest importer of LNG, but may lose the crown this year as high spot prices and record domestic coal output curtail appetite for purchases above contracted volumes.

China imported 6.62 million tonnes in June last year, and the Refinitiv data suggest the volume for the current month will be substantially lower, most likely around 4.5 million tonnes.

Asia, Europe LNG imports vs JKM price


There are also some signs that Europe's surging LNG imports in recent months may be starting to taper off somewhat as concern over storage levels in the continent ease.

Europe is trying to switch away from Russian pipeline and LNG supplies as fast as possible as part of efforts to punish Moscow for its Feb. 24 invasion of Ukraine, as well as lower its reliance on a supplier now deemed hostile and unreliable.

This saw Europe's LNG imports surge to record highs in the first five months of the year, with all of those months exceeding any other month in Refinitiv records going back to January 2013.

However, in the first 13 days of June, Refinitiv data show 4.08 million tonnes of LNG being discharged at European ports, which puts the continent on track to import around 9.4 to 9.8 million tonnes for the month as a whole.

This would be down from May's 11.29 million tonnes, although it would still be well above the 6.11 million for June 2021.

Overall, there are signs that some of the heat is coming out of the market for spot LNG in both Asia and Europe, especially given that the outage of a significant U.S. export plant didn't cause a major spike in prices.

The opinions expressed here are those of the author, a columnist for Reuters.

Editing by Richard Pullin

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Clyde Russell is Asia Commodities and Energy Columnist at Reuters. He has been a journalist and editor for 33 years covering everything from wars in Africa to the resources boom and its current struggles. Born in Glasgow, he has lived in Johannesburg, Sydney, Singapore and now splits his time between Tasmania and Asia. He writes about trends in commodity and energy markets, with a particular focus on China. Before becoming a financial journalist in 1996, Clyde covered civil wars in Angola, Mozambique and other African hotspots for Agence-France Presse.