Warm winter pushes LNG to 17-month low in biggest market

SINGAPORE (Bloomberg) -- Liquefied natural gas prices in North Asia, the world’s biggest market for the fuel, have slumped to the lowest in 17 months as the peak demand season ends with a whimper. 

Benchmark LNG Japan/Korea Marker futures have tumbled 31% since the start of the year as a milder-than-normal winter left buyers in Japan, South Korea and China with brimming stockpiles and little need to dip into the spot market. At the same time, a flurry of prompt supply, from Australia to Indonesia, has kept the market well supplied.

Nearly all end-users have moved onto buying April cargoes, officially marking the end of the winter peak-procurement season and dashing any bullish hopes for a last-minute supply crunch. Analysts at Wood Mackenzie see spot prices extending declines to bottom at $5.80/MMBtu in June before crawling back to $7.40 by December.

“Warm weather has meant that Japanese and particularly South Korean storage levels are still at very high levels,” said Nicholas Browne, an analyst at Wood Mackenzie. Going forward, “we expect to see a decline in Japanese and South Korean demand this year due to new coal capacity and restarting nuclear.”

Benchmark LNG Japan/Korea Marker futures for April delivery declined 3.1% on Thursday to $6.25/MMBtu, the lowest for front-month prices since September 2017.

Recently in the physical market, Japan’s Tohoku Electric Power bought a cargo on a delivered basis for April 1-5 at between $6.20 and $6.30/MMBtu. BP sold to Gunvor Group on the Platts Market-on-Close trading window Thursday a cargo for delivery to north Asia during April 15-17 at $6.20.

The LNG slump comes as crude oil has been on a tear, with Brent futures jumping 24% this year. LNG spot prices, which in the past tracked closely to oil because most of the region’s purchases are indexed to crude, are about 9% the price of Brent, the lowest in nearly three years.