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Asian prices hit record highs as buyers focus on winter supplies

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/File Photo

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LONDON, Aug 12 (Reuters) – Spot liquefied natural gas (LNG) prices in Asia rose to record levels this week as Asian buyers sought to secure supplies ahead of winter, with Europe cutting Russian gas flows lower.

Average LNG prices for September delivery to Northeast Asia were estimated at $48 per million British thermal units (mmBtu), up $3 or 6.7% from the previous week, industry sources said.

The average price for October delivery is estimated at $51/mmBtu, slightly above a Reuters estimate of a record level of $48/mmBtu in December.

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“Prices in Asia continue to rise, with Japan and Korea raising levels with recent tenders, but there is still some anxiety about when China will come back,” said Toby Copson, head of global trading and consulting at Trident LNG.

The gap between Asian and European LNG prices widened in a week when demand for winter purchases from Japan and South Korea came under the spotlight for market participants.

On Thursday, October products for the Platts Japan Korea Market (JKM) – widely used as an Asian benchmark – rose to a $4.70/mmBtu premium to its European LNG benchmark, Platts DES Northwest Europe, global director of LNG Ciaran Roe said. S&P Global Commodity Insights.

“This will allow Atlantic Basin LNG to flow over northwestern Europe to northern Asia,” Roe said.

In Europe, S&P Global Commodity Insights assessed LNG prices on a delivered ex-ship (DES) basis at $47.123/mmBtu on August 11, a discount of $15.65/mmBtu from September TTF prices.

“The Platts NWE forward curve was evaluated at a discount of about $13/mmBtu to the equivalent TTF contract month throughout the winter months, meaning the market perception is that heavy discounts will remain in the coming months,” Roe added.

According to Hans van Cleef, senior energy economist at ABN AMRO, more gas is being used for power generation in Europe than expected due to difficulties in securing alternative energy sources, posing additional challenges to already tight gas markets.

Wind power generation is weak, low water levels are preventing the delivery of coal to power plants, and nuclear plants are operating at reduced capacity due to the heat wave.

“Most of the LNG available is heading to Europe, as it is still paying more for LNG than Asian buyers. The question is whether this will hold when the summer ends and the hot season begins. Such uncertainties will continue to drive LNG and gas prices in the coming months,” Van Cleef said.

Refinitiv shipping data shows that Russia has exported its first direct LNG volumes to Indonesia, suggesting that Russian LNG cargoes could be re-allocated to new trade routes.

In the United States, the market is concerned that the Gulf of Mexico hurricane season — which typically peaks from mid-August to mid-November — could disrupt natural gas production, Rystad Energy said.

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Reporting by Marwa Rashad; Edited by Nina Chestney

Our criteria: Thomson Reuters Trust Principles.

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