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Asian spot prices drop on weak demand, rising supply

The price of Asian spot LNG (liquefied natural gases) fell this week due to a combination of factors: a weak demand, a rising supply, and an abundance in inventories. Meanwhile, the risk premiums were reduced by reducing the ceasefire between Israel & Iran.

Average LNG price for August deliveries into North-east Asia Industry sources estimate that the price per million British Thermal Units (mmBtu) was $12.70, down from $13.10/mmBtu in the previous week.

The market was under pressure from a combination of factors, including the rising Pacific supply, the high LNG stocks in China and South Korea and the weak industrial demand throughout China and India. "The Iran-Israel ceasefire has further lowered geopolitical risks premiums", said Kpler analyst Go Katayama. He added that production from Australia, Malaysia, and Nigeria have increased.

The bearish outlook continues, as initial LNG Canada exports add to the supply length. Further price drops could encourage restocking in Japan, especially if soft fundamentals continue.

The data from the Industry Ministry showed that LNG stocks held by major Japanese utilities had fallen to 2,15 million tons on June 29 due to hotter weather driving cooling demand. The previous week, the stockpiles were 2.27 million tonnes. However, the current level is slightly higher than the average five-year volume of 2.1 millions tons.

Katayama added that despite the steady nuclear output of Japan, the rising temperatures outpace non-gas production capacity. This could lead to increased spot purchases if this heatwave continues.

S&P Global Commodity Insights, a commodity research firm in Europe, assessed the daily North West Europe (NWM) LNG Marker price benchmark on a basis of ex-ship (DES), for August cargoes at $11.142/mmBtu. This represents a $0.435/mmBtu reduction from the gas price at TTF's hub.

Spark Commodities set the price at $11.175/mmBtu for August, while Argus estimated it at $11.119/mmBtu.

The lack of a strong demand catalyst on the global LNG market did not result in strong price movements this week. However, the supply picture balanced out due to increased liquefaction by the U.S.A. and Qatar which helped improve supply fundamentals," stated Aly Blakeway.

As a result of a closed arbitrage with Asia, and the heatwaves in Europe that drew in LNG waterborne cargos, Europe continues to receive the bulk of LNG cargoes.

Xiaoyi Deng is deputy head of LNG prices at Argus. She said that European prices are limited because demand has been weak in other regions, and the European Union storage targets, which have become less strict, have shifted risks from summer to winter.

Deng said that the recent increase in winter premiums for prompt deliveries reflects this.

According to Spark Commodities analyst Qasim Afghan, the U.S. Arbitrage to Northeast Asia via Cape of Good Hope has been pointing towards Europe for the past five weeks, while the arbitrage through Panama continues to point to Asia.

He said that the Atlantic LNG rates have fallen to $42,000/day while Pacific LNG rates are down to $40,000.

(source: Reuters)