GLOBAL LNG-Asia spot prices down on tepid demand; Hormuz risk in focus

By Marwa Rashad

LONDON, Feb 27 - Asia spot liquefied natural gas prices fell this week as mild winter and high inventories lowered demand and amid concerns about a potential collapse of US-Iran negotiations which could trigger a military escalation in the Middle East.

The average LNG price for April delivery into north-east Asia LNG-AS was estimated at $10.40 per million British thermal units (mmBtu), compared with $10.60/mmBtu in the previous week, industry sources said.

"Fundamentally, the market is weak in north Asia with almost no demand from China whatsoever...marginal procurement appears limited," said Toby Copson, managing partner at Davenport Energy

"There is some intraday volatility coming from the U.S.-Iran talks and the broader geopolitical landscape. However, in physical markets most of that premium has been absorbed and priced in," he said.

Most of the Asian spot demand has emerged from south and south-east Asia as price levels are palatable for many buyers in the region, said Martin Senior, head of LNG pricing at Argus.

The United States and Iran held indirect talks in Geneva on Thursday and plan to resume negotiations next week in Vienna.

The Strait of Hormuz between Oman and Iran carries roughly one‑fifth of global LNG shipments, most of which originate from Qatar, the world’s major LNG exporter.

"If Qatar were unable to export LNG cargoes because of infrastructure damage or shipping impairments, the effect on global gas prices would be dramatic," said Florence Schmit, energy strategist at Rabobank

"While a loss of Qatari supply would hit Asian markets directly, the price rally in Europe would likely be even more pronounced," she added.

In Europe, wholesale gas prices were up on Friday afternoon, as traders braced for possible U.S. military action in the Middle East, but weak demand and warmer temperatures curbed the upside.

European gas storage continued has continued to go down, with inventories hitting fresh seasonal lows. As winter fades, Europe faces the challenge of rebuilding stocks from comparatively lean levels, said Aly Blakeway, manager of Atlantic LNG at S&P Global Energy.

S&P Global Energy assessed its daily Northwest Europe LNG Marker (NWM) price benchmark for cargoes delivered in April on an ex-ship (DES) basis at $9.876/mmBtu on February 26, a $1.17/mmBtu discount to the price at the TTF hub.

Argus assessed it at $10.11/mmBtu, while Spark Commodities assessed the March price at $9.987/mmBtu.

Hedge funds appear to be taking a step back from trading TTF gas futures, said independent analyst Seb Kennedy.

"In a rare move, funds left their net long position virtually unchanged for two consecutive weeks. Concurrently, the number of funds actively trading TTF has dropped by 10% since hitting a record high of 465 in mid-January," he said.

In global LNG freight, Atlantic rates rose to $42,750/day, and Pacific were stable at $28,250/day, said Spark Commodities analyst Qasim Afghan.

The U.S. front-month arbitrage to north-east Asia via the Cape of Good Hope has narrowed this week but it is still pointing U.S. prompt cargoes to Europe, he said.