Asian LNG prices hit new records as Japan, South Korea start stocking for winter

Singapore is particularly vulnerable to the supply crunch that has sent natural gas prices in Asia to records highs. - ST

SINGAPORE (The Straits Times/Asia News Network): Liquefied natural gas (LNG) prices in Asia have hit fresh records as Japan and South Korea, two of the region's largest buyers, start their procurement programme for the coming winter, industry sources said.

As Singapore imports most of its gas requirements, residents here can expect electricity prices to remain high.

The electricity tariff for the July to September quarter, exclusive of goods and service tax, is 30.17 cents per kilowatt-hour, up 8 per cent from the previous period.

The surge in LNG prices had been triggered by a strain on global supplies as Europe grapples with the significant loss of gas flows from Russia.

In Asia, the average LNG price for spot cargo being delivered in the month of October to north-east Asia is estimated at US$57 to US$60 per million British thermal units, according to industry sources, considerably higher than prices at the start of the third quarter.

Spot LNG prices in Asia were trading at around US$42 to US$43 at the tail end of July going into early August, up from around US$25 in May and about US$38 in June, according to industry data.

Alex Siow, lead Asia gas analyst at data intelligence company ICIS said Japan and South Korea combined are looking to secure around five million tonnes of spot cargo in August, September and October, compared with 5.5 million tonnes during the same period last year.

While the volume is slightly lower than in 2021, Siow said the market dynamics now is starkly different, pointing to the highly volatile situation in Europe.

Russian pipeline gas supplies to Europe have dropped off by around 75 per cent this year, impacted by a tug of war over European sanctions on Moscow over its invasion of Ukraine.

This week, Gazprom, the Kremlin-controlled company with a monopoly on Russian gas exports by pipeline, announced an unscheduled maintenance on Nord Stream 1, one of its largest pipelines supplying gas to Germany.

The disruption to piped gas supply has caused European buyers to compete aggressively for limited spot LNG supply in the global market, by outbidding buyers in Asia, said Mr Toby Copson, global head of trading and advisory at Trident LNG.

"It's safe to assume that Europe will be active and try to corner whatever volume is available, but securing it isn't guaranteed when you have government backing and initiatives like we have seen from South Korea and Japan. So, in effect, we will see a bidding war, and during this, prices will remain elevated due to the competition from Asia," he said.

Siow said that based on ICIS price data, the total value of the 80 cargoes set to be bought from August through October is estimated to be about US$14.7 billion (S$20.4 billion), more than double the US$6.7 billion value of the 88 cargoes purchased during the same period in 2021.

While the imbalance between supply and demand has been reduced slightly from ICIS' forecast of 14.4 million tonnes in July, Siow said the market still remains short of about 12.3 million tonnes.

Valery Chow, vice-president at consultancy Wood Mackenzie, said the high prices have resulted in buyers, particularly in South Asia, scrambling to reduce their power-generation costs by opting to use oil, which is cheaper than gas.

"For countries that can switch, oil reduces rapidly increasing power bills and staves off economic stress," he said.

He added that oil demand has increased 67 per cent in Pakistan and 40 per cent in Bangladesh year on year. "These countries are rapidly increasing fuel oil imports to meet power demands."

In August, Senoko Energy president Graeme York told The Straits Times that the company had used more diesel for power generation over the past six months due to the volatility of gas prices and supply.

The Energy Market Authority (EMA) had also noted at the time that while power-generation companies in Singapore continue to use natural gas for electricity production, the plants are designed to be able to operate on diesel as a back-up fuel.

While oil prices have fallen from a 2022 peak of around US$130 a barrel seen in March, strong demand for gas oil in the fourth quarter is pushing up prices over concerns about available supply, said Yaw Yanchong, director at Refinitiv, a unit of the London Stock Exchange Group.

He said: "We expect gas oil demand to peak in the winter, especially with the Dec 5 deadline of the European Union's complete ban of seaborne Russian oil imports looming."

Based on Refinitiv assessments, margins for gas oil are currently at around US$45 to US$50 a barrel, compared with pre-invasion levels when it was pegged at around US$10 a barrel.

"Winter demand is bullish and, as we have said before, the dip in oil prices is not a reflection of market fundamentals. There is a war in Europe where the stakes are now much higher than when it first started, and Europe is facing a severe energy crisis, as you can see from electricity costs in the region," said Yaw.

Conserving energy is the simplest way for consumers in Singapore to keep their power bills in check, said industry executive Malavika Bambawale.

Bambawale, regional managing director of sustainability solutions at Engie Impact, told The Straits Times: "Energy efficiency is the lowest hanging fruit... (it) will be a win-win approach to reduce power consumption, save money and reduce carbon emissions."

Bambawale noted that simple daily lifestyle adjustments can go a long way in keeping costs down.

"Energy efficiency is also about equipment change, and it starts from the simplest things," she added.

"For example, replacing incandescent bulbs with fluorescent or LED bulbs can already make energy use 10 to 20 times more efficient. The challenge lies in the initial investment needed to adopt energy-efficient equipment."

Her advice comes amid a growing global crisis in energy supplies triggered by sanctions on Russia, a major gas and oil producer.

Power prices have gone through the roof in recent months as competition intensifies among nations desperate to lock in new energy sources.

Singapore, which imports 95 per cent of its power generation requirements, is particularly vulnerable to the supply crunch that has sent natural gas prices in Asia to records highs.

Electricity tariffs here will increasingly reflect the new pricing levels in the months ahead.

SP Group's electricity tariff for the period of July 1 to Sept 30 is at $30.17 cents per kilowatt-hour (kWh), excluding GST. This is up around 8 per cent from the previous rate of $27.94 cents per kWh.

Electricity tariffs have been rising since the first quarter of last year.

The Open Electricity Market's price comparison website showed on Thursday (Aug 25) that prices are now ranging from $31.30 per kWh to as much as $48.15 per kWh.

Engie Impact is the sustainability consulting arm of French energy company Engie. Its South-east Asia unit was appointed by JTC Corporation last year to build, own and operate an underground district cooling system for the Punggol Digital District.

It involves Engie building the plant, which will have a cooling capacity of 30,000 refrigeration tonnes, equivalent to cooling 8,000 four-room Housing Board flats.

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Singapore , LNG , prices , Asia , Japan , South Korea , stock


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