Asia LNG spot prices surged to a near three-year high Monday as surging Chinese demand and robust oil prices coincided with persistent supply anxieties.
The Platts JKM for January was assessed at $9.85/MMBtu Monday, the highest price since January 9, 2015, and up about 8% since the start of the month.
China imported 28 million mt of LNG in January-October 2017, up 47% from 19 million mt in the same period last year, closing the gap to the world's second-largest importing nation, South Korea.
The country's policy directives encouraging coal-to-gas switching to combat air pollution mean that LNG imports were increasingly needed to feed the country's enormous energy appetite.
The replacement of coal-fired heating with gas-fired boilers at millions of Chinese households this year also boosted winter LNG purchases.
This additional demand was satisfied through spot procurement largely through majors CNOOC and PetroChina. Both companies were active in spot dealmaking, either via bilateral transactions or participating in sell-tenders, sources said.
In particular, CNOOC awarded a rare tender for up to seven December deliveries in late-September, sources said. Other importers like Guanghui Energy opted to do short-term strip deals, while others like Sinopec and Jovo relied on long-term contracted volumes.
"China's activity on the spot market this year really took out a lot of excess supply, especially for leaner cargoes," an international trader said.
Market participants also attributed this year's spot price rally to higher oil prices which boosted the price attractiveness of spot cargoes.
Dated Brent prices have been trading in the $60-64/MMBtu range since the end of October, levels unseen since June 2015.
Asian buyers of long-term volumes fixed on an oil-linked basis could still be incentivized towards spot procurement especially during peak-winter demand. On the other hand, spot trading activity in the weaker demand periods of spring and autumn were boosted by traders and portfolio players optimizing oil-linked positions.
However, supply concerns also accelerated the spot price jumps this year.
Spot prices had surged almost 60% since the start of September, with the rally ignited by the disruption of US Sabine Pass output due due to Hurricane Harvey. This mean offtakers had to source spot LNG cargoes from elsewhere, as well as optimize their Pacific positions.
The continued delay of Wheatstone LNG's start-up in Australia also meant that supply was unexpectedly constrained at the start of the fourth quarter. The facility shipped its first export cargo to Japan's JERA at the end of October.
