Global LNG – Asia at discount to Europe for first time since 2011

Asian spot liquefied natural gas (LNG) prices slipped to a discount to European prices for the first time since 2011, as weak demand weighed, traders said on Friday.

The price of spot LNG for March delivery fell to $6.90 per million British thermal units on Friday from $7.20 last week, while UK natural gas prices were just above $7.00.

“Anyone now with supply going West to East, would be fair to put the cargoes in the West. This will help the (Asia) price stabilise a bit and maybe pick up,” a trader said.

European gas has not traded at a premium since the Fukushima nuclear crisis caused a spike in Asian demand in 2011.

Some traders believe the premium may not hold, however, as European prices would come under pressure at the end of winter.

“There’s a lot of premium built in at the moment in Europe, but they’re going to fall off a cliff, it’s just a case of when,” said a second trader.

“The whole northern European gas (market) hasa jitter premium built in for Ukraine, it’s got a bit of a cold weather premium in there as well.”

The European Commission helped negotiate a winter gas deal package after Russia cut supplies to Ukraine in mid-June, but Ukraine will need a new price agreement with Gazprom from April 1, when the current deal expires.

Europe relies on Russia for about a third of its gas, almost half of which is piped via Ukraine.

Maintenance

Traders said weak demand and low prices could trigger some suppliers to move maintenance plans forward in a bid to support the market. There is a risk that this could push the supply glut further out though.

“If prices are low and there’s an oversupply, shareholders will push plants to advance any maintenance plans, but I don’t think they should push it too much because there’s a lot of new supply coming on later on in the year and next year, so pushing forward maintenance is not necessarily a good idea,” said one trader.

More details on the results of Egypt’s recent tender were announced this week, with trading house Trafigura to import 33 shipments LNG spread over 2015 and 2016, as part of the broader deal for four parties providing 75 shipments of LNG.

Energy-hungry Egypt’s willingness to push fuel market reforms and stick to debt repayment plans has led to an unexpected resurgence in oil and gas exploration and supply deals previously delayed by political upheaval.