China ramps up LNG spot buying amid JKM winter price surge fears

22 Sep 2021

Quantum Commodity Intelligence - The scramble to secure LNG supplies ahead of the winter demand crunch ratcheted up a notch Wednesday on reports Chinese trading giant Unipec had tendered for 11 cargoes of LNG for delivery between November and March.

While Sinopec's trading arm securing supplies ahead of winter is not unusual, the volume is seen on the higher side of expectations as regional gas suppliers Beijing Gas Group Co. and Guangzhou Gas Group Co. were also in the market for fresh Q4 supplies.

China has battled against high energy prices and power shortages for much of the year amid lower hydro generation and soaring coal prices.

A sustained cold snap last winter in Northeast Asia that saw Asian benchmark JKM prices soar above $30/mmBtu in January sparked fears of a similar price surge this winter.

Some market watchers believe the upside could be even more excessive given current European gas shortages.

JKM had been trading below $5/mmBtu in Q4 2020, but the demand surge saw prices rally to record levels, including a cargo trading at an all-time high of around $39/mmBtu in mid-January.

JKM futures for the Nov21 up to Jan22 period broke through $27/mmBtu level this week according to exchange data, while physical prices moved above $28/mmBtu, reported Platts Wednesday.

Meanwhile, Goldman Sachs warned this week over the potential for a fresh spike in Asian gas prices, which could accelerate gas-to-oil demand substitution.

"Risks to our estimated oil and gas price thresholds to absorb colder weather are skewed to the upside, as illustrated by the rally in JKM prices to $32/mmBtu in January," said the bank.

Meanwhile, European TTF gas prices eased slightly from Tuesday's double-digit percentage gains, trading around €71.50/MWh late-afternoon Wednesday versus the previous settle of $74.025/mmBtu.

Pricing dominated the Gastech conference in Dubai this week as consuming nations flagged concerns, including Bangladesh, with domestic demand for power generation reaching record levels.

Bangladesh has reversed its decision to skirt the expensive spot LNG market following a surge in demand for natural gas that is driving energy shortages and forcing importers to procure gas at record high prices, reported Platts this week, quoting a senior official.