Asia LNG Summary: Demand Tepid Entering Winter

Asian demand for LNG has been subdued as the market approaches winter, as high JKM prices and forecasts for above average temperatures keep a lid on buying. This is likely to put some downward pressure on prices in the near term.

• JKM Nov 23 down -2.9% at 17.61$/mmbtu. Although down on the day, prices are up around 43% from the month-to-date low closing level on Oct. 5. JKM prices are also hovering around their highest level since February.
• Previous support has come from winter buying from portfolio players, according to Bloomberg.
• Portfolio players have also been seen on the sell side. Exxon sold an LNG cargo on a DES North Asia for H2 Dec., according to Bloomberg’s sources, pricing at around JKM plus 30-50 cents/MMBtu.
• However, at current levels, Chinese buyers, despite having capacity for more cargoes, are reticent to enter the market at current prices. Chinese power generation is also increasing use of coal rather than natural gas.
• Chinese buyers such as CNOOC, also see high inventories entering the winter, with tightness only expected for the peak cold weather in December and January.
• In Japan, another key LNG buyer in the region, demand is also likely to be capped by milder weather. Eastern and western areas of Japan have just a 20% chance of below average temperatures between Oct. 21-Nov. 20, according to Japan Meteorological Agency’s latest month-long forecast. Conversely, the probability that those regions experience warmer weather is 50%.
• LNG stockpiles held by Japanese power generators are at their highest level since June and above the five-year average for this time of year at 2.16m mt.
• There has also been limited spot tender activity within the region, particularly for deliveries in 2023. The exception is Tokyo Electric, issuing a tender for a December spot cargo, according to Bloomberg. The tender closes Oct. 20.