Tuesday, January 12, 2021

Cold Snap Sparks Record Rise in Natural Gas Prices in Asia

Traders are struggling to secure enough vessels to transport LNG from the U.S. Gulf Coast to Asia in time to meet rampant demand 

By Joe Wallace of The WSJ

Good article illustrating supply and demand issues. It seems that an increase in demand and a decrease in supply are raising the price of LNG.


"A blast of cold weather in northeast Asia [the demand increase] and a shortage of ships for transporting gas have sparked a scramble for cargoes of liquefied natural gas, igniting a steep rise in prices [I don't think there is a shortage of ships just fewer ships available which has raised their price which gets passed on to the LNG customers-this is the price of a resource increasing (with shipping being a resource in getting LNG to customers) and that reduces supply. Remember that supply means producing and getting a good to customers-if it is stockpiled somewhere but not where the customers can get it does not count as supply]

Prices for LNG shipped to China, Japan and South Korea, all major importers, have surged from record lows to all-time highs in less than a year. The regional price benchmark assessed by S&P Global Platts rose to $28.221 per million British thermal units on Monday, and has shot up 87% so far in 2021.

LNG is 15 times more expensive than it was when coronavirus hammered demand for oil and gas in the spring of 2020, the nadir of a years long slump in gas prices globally. In some cases, prices paid on the ground for cargoes have exceeded the levels indicated by Platts.

“It is a perfect storm,” said Toby Dunipace, executive director for LNG at London shipbroker Simpson Spence Young. Stores of gas in East Asia were severely depleted after the mercury plunged, he added.

Despite outages for producers in Australia, Norway and elsewhere, there is no global shortage of LNG. The trouble is moving gas to where it is needed [I agree that there is no shortage of LNG-shortage would mean that price is below where supply and demand intersect and that quantity demanded is greater than quantity supplied-this is not the case because price has risen due to the increase in demand and decrease in supply].

Freezing weather in Asia—temperatures plumbed as low as minus 3 degrees Fahrenheit in Beijing last week, a half-century low—is creating more demand for gas, which is burned to generate electricity and warm homes and offices. A lack of available ships means gas can’t move fast enough from the U.S. and Europe, where it is plentiful, to sate this demand."

"But traders are struggling to secure enough vessels thanks to delays at the Panama Canal, which is dealing with a seasonal backlog of container ships that has been aggravated by the strong demand for consumer goods during the pandemic. Instead of waiting in line for over a week, some LNG carriers are taking the long route to Asia around the Cape of Good Hope. Circumnavigating the cape adds about 17 days to the voyage from the Gulf Coast to Tokyo" [This extra time again adds to the total production cost which reduces supply]

"Charter prices for vessels moving LNG from the Gulf Coast to Europe rocketed to $322,500 a day Friday from about $190,000 a day at the end of 2020" [This why I said earlier that there is no shortage of ships-there might be fewer ships delivering LNG than there used to be, but the price is higher due to the decrease in supply-quantity supplied still equals quantity demanded]

"Utilities are competing for a small number of cargoes that could be delivered by February. Traders are passing higher shipping rates onto end users."

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