South Asia is back on the spot market for liquefied natural gas (LNG) as prices have dipped to the lowest in a year and a half, prompting the price-sensitive buyers in the region to buy the fuel which was prohibitively expensive six months ago.
South Asian economies India, Pakistan, and Bangladesh have shown signs of activity on the spot LNG market in recent weeks, encouraged by the more than 70% slump in prices since the record highs seen in August 2022.
The return of South Asia to LNG purchases could at least partially curb the region’s high coal consumption and imports this year, according to Reuters’ Global Energy Transition Columnist Gavin Maguire.
Yet, more gas demand in South Asia – coupled with an expected rebound in demand in China – could also tighten the LNG market and intensify the competition with Europe for spot LNG supply in the summer. This, in turn, will lead to a return of higher spot LNG prices, which the cash-strapped governments of Pakistan and Bangladesh will not be able to afford—again.
Asia Spot LNG Drops To Lowest Since August 2021
Last week, Asia’s spot LNG prices dipped – for yet another week – by 8.1% to around $17 per million British thermal units (MMBtu) for March delivery, while LNG for April delivery was even lower, at $16.50 per MMBtu, according to estimates from industry sources cited by Reuters.
The price decline, to the lowest level since August 2021, has incentivized price-sensitive LNG customers in south Asia, such as Bangladesh, Thailand, and India, to return to the spot market they abandoned last year amid surging prices.
“We are back in the comfort zone of many price-sensitive South and Southeast Asian buyers. Accordingly, we have seen Thailand and Bangladesh most recently,” Kaushal Ramesh, senior LNG analyst at Rystad Energy, told Reuters earlier this month.
So far this year, Asian spot LNG prices have slid by around 40% and are more than 70% lower from the record $70 per MMBtu in August 2022.
South Asia Back To Buying Spot LNG…
The markedly lower spot LNG prices have prompted India, Bangladesh, and Thailand to seek to buy LNG cargoes by the middle of this year. Bangladesh is returning to the spot market after halting tenders to buy the fuel in July 2022 as prices soared amid Europe’s rush to procure LNG for this winter without much of the previous supply of Russian pipeline gas.
Petrobangla, the state-owned firm arranging LNG imports for Bangladesh, plans to buy between 10 and 12 cargoes on the spot market by June, a senior official at the company told Reuters earlier this month. Spot prices are still higher than contracted supply, and Bangladesh is seeking long-term deals.
“We are also trying to secure LNG from long-term partners, but it looks like they are unable to provide this year,” the official said.
Global long-term LNG contracts are sold out until 2026, a survey of Japanese companies conducted by the local trade ministry showed at the end of last year.
India also expects to boost its LNG imports this year as prices have eased, the biggest gas importer in the country, Petronet, said last month.
In India, LNG imports fell by 15.2% in 2022, but the total cost increased by 44.5% due to high LNG prices, the Institute for Energy Economics & Financial Analysis said in a report this week. Bangladesh’s LNG imports fell by 16% last year, while Pakistan’s LNG consumption slumped by 18.9% in 2022 due to high prices and the unavailability of fuel, IEEFA said.
“Similar to Bangladesh, Pakistan’s foreign currency reserves are depleting rapidly due to the country’s high dependence on imported fossil fuels and skyrocketing commodity prices,” IEEFA noted.
…For How Long?
Going forward, rising concerns over fuel supply security and affordability of LNG have downgraded the prospects for LNG demand growth in the region, according to the institute.
“In Asia, LNG has now earned a reputation as an expensive and unreliable fuel source, clouding future demand,” said IEEFA.
LNG demand in Asia this year is set to increase, thanks to the Chinese reopening and the return of South Asia to the spot market.
However, South Asia’s price-sensitive buyers could face another challenge in procuring spot supply later this year as the Europe-Asia competition for attracting LNG cargoes is set to intensify, leading to higher prices.
The race to ensure supply for next winter hasn’t even started in earnest yet. Prices are set to hold higher than before the Russian invasion of Ukraine through the summer as Europe will face stiffer competition from Asia for LNG supply. Europe’s natural gas futures point to structurally higher prices for the rest of the year, as Europe will soon have to start filling inventories for the 2023/2024 winter.
“Going forward, it will be a tug of war for the marginal cargo. We do see more shift of flow into Asia and of course the prices of the LNG in Europe and Asia will, to some extent decide where the cargoes will be flowing,” Oystein Kalleklev, the chief executive of shipping firm Flex LNG, said on the company’s earnings call this week.
By Tsvetana Paraskova for Oilprice.com
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