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Asia spot prices jump amid strong demand, concerns over Russia

A liquefied natural gas (LNG) tanker is towed towards a thermal power station in Futsu, east of Tokyo, Japan November 13, 2017. REUTERS/Issei Kato

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LONDON, July 1 (Reuters) – Spot liquefied natural gas (LNG) prices in Asia continued to rise this week amid strong demand in the wake of a blistering heat wave in Japan and a return to competition with Europe set for a possible disruption from Russia. gas

Average LNG prices for August delivery to Northeast Asia were estimated at $39 per million British thermal units (mmBtu), up $2, or 5.4%, from the previous week, industry sources said.

“Demand from Japan in the wake of the heat wave was evident as some utilities bought prompt commodities this week,” said Ciaran Roe, global director of LNG at S&P Global Commodity Insights.

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“Furthermore, as concerns over the length of the Freeport LNG shutdown increased, the JKM (Japan Korea marker) forward curve shifted into a contango formation for September/October, having previously lagged behind,” he added.

Contango means that the futures price is higher than the spot price, while backwardation is the exact opposite, where the forward price of the futures contract is lower than the spot price.

S&P Global Commodity Insights assessed LNG prices on a June 30 delivered ex-ship (DES) basis to Northwest Europe at $38.425/mmBtu, a discount to August prices at the Dutch gas hub of $5.775/mmBtu, said Ciaran Roe, LNG global director.

In June, for the first time in history, US LNG supplied Europe with more gas than pipeline gas from Russia.

The European Union imported 21.36 million tonnes in the first half of 2022, up from 8.21 million tonnes in the same period a year ago, said Robert Sanger, LNG analyst at data intelligence firm ICIS.

Traders are weighing the risks of further supply cuts on Nord Stream 1, which is due for annual maintenance in July, as any further cuts or extended maintenance would have huge implications for the European gas balance.

“The stage is set for a global tug-of-war between Europe and Asia for spot LNG commodities, with Asia spot LNG prices likely to return to a premium over European gas prices,” said Edmund Siu, LNG analyst at consultancy FGE. .

Another bearish factor for LNG prices is Russia’s decision on Friday to take full control of the Sakhalin-2 gas and oil project in the Far East, which could force out Shell and Japanese investors.

The order creates a new entity to take over all the rights and obligations of Sakhalin Energy Investment Co., in which Shell and Japanese trading companies Mitsui and Mitsubishi hold just under 50%. Read more

About 61% of Sakhalin’s exports went to Japan in the first half of this year, according to Refinitiv Eikon data.

Japanese Prime Minister Fumio Kishida said Russia’s decision would not immediately stop LNG imports from the development. The same message was echoed by the Kremlin, saying Russia sees no basis to stop LNG supplies.

However, increased political risk will help maintain and possibly increase the risk premium for LNG prices, said Tamir Druze, managing director of consultancy Capra Energy.

LNG freight rates fell as vessel availability increased after the Freeport shutdown, with Atlantic rates estimated at $50,500 a day and Pacific rates at $61,000 a day on Friday.

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Reporting by Marwa Rashad; Edited by Nina Chestney

Our criteria: Thomson Reuters Trust Principles.

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