Notes From All Over -- The Late Night Edition -- The Asian - US LNG Paradox -- January 15, 2021

Updates

Later, 2:54 a.m. CT, January 15, 2021: bitter cold brings chaos as global energy systems show strain; power and gas prices spike to records across global markets; more cold weather from the Arctic possible from end of January -- Bloomberg. Wow, perfect storm in a good sense; all bullish for oil companies:

• weakening dollar;
• OPEC+ agrees to maintain/cut; Saudi surprises by cutting more than expected;
• global freeze;
• global economy recovering from Covid (maybe)

Later, 2:22 a.m. CT, January 15, 2021: see if anyone mentions the Groningen? Nope. Groningen on the blog.

Later, 01:50 a.m. CT: literally one minute after posting the note below the following popped up on twitter. Link to Financial Times here. LNG rally heralds more volatile gas prices to come: spike in demand in Asia triggers scramble for supplies.

When restaurants in Japan open their windows to help combat the spread of Covid-19, you might not think it would have much effect 6,000 miles away in lockdown Britain.

But the shivering diners of Tokyo and Kyoto, where restaurants are still allowed to admit customers for limited hours, are not just an illustration of the differing emphases put by governments on the dangers of the aerosol spread of the virus. They also tell a story of interconnected energy markets and increasingly how what happens in Asia can have a large knock-on effect for the UK and Europe — from what consumers pay to heat their homes to the ability of national grid systems to comfortably keep the lights on.

As a brutal cold snap has hit Japan and much of north-east Asia in recent weeks, Japanese utilities have had to scramble to source fuel supplies. Power prices in Japan have soared to record highs and the government has asked citizens to limit energy consumption by turning off lights and appliances, even while urging them to keep the heating on and the windows open.

But the biggest pinch point for Japan has been the country’s reliance on liquefied natural gas, a once relatively niche commodity that has grown in global importance over the past decade. Japan has long been one of the biggest importers of LNG, which is natural gas that has been super-chilled and compressed so it can be delivered by ship. The country lacks pipeline access to gas or its own reserves of a fuel that it needs for heating, electricity generation and manufacturing.

But as the LNG market has grown, Japan has had to increasingly compete with other countries looking to substitute highly polluting coal. Energy consultancy Wood Mackenzie estimates LNG has risen from 11 per cent of global gas supplies in 2010 to 15 per cent today (and it forecasts it will reach more than 20 per cent by 2040).

Prices for LNG cargoes in the Asian spot market have soared to record levels this week as the cold snap hit, up almost 20 fold from just a few months ago when the market was seen as oversupplied. Energy traders have diverted every LNG cargo they can towards the Asian market, with China and South Korea also scrambling to buy.

But they have been hamstrung by a number of problems, from a lack of available tankers and delays at the Panama Canal, to outages at various projects. Goldman Sachs described the situation this week as a gas market that had “shifted from a bearish perfect storm last year to a bullish perfect storm now”.

Much more at the link. Will be archived.  

Original Post

LNG pricing: Asia vs US. A few days ago a reader asked why Asian LNG could be priced more than 10x higher than US LNG. A reader who knows the subject very, very well replies:

Addressing one of your reader's curiosity as to why US gas prices are not rising despite torrid Asian (and now European) demand:

US LNG plants are operating near 100% capacity: about 11 Bcfd. They are simply maxed out and the feedgas supplies are tied into Henry Hub. 

Somewhat counter-intuitively, US prices may drop mid-February as a shortage of available ships may cause a drop in US LNG exports. Slightly longer term (balance of 2021 out to October or so), HH pricing should stay firm (around $2.80?) as the demand to replenish depleted storage supplies should be very strong.

Taking a slightly broader view, the jarring discrepancies between contractual arrangements versus spot market is/has been HUGE!

That is to say, customers with firm, long term contracts are doing okay. Those needing both LNG and ships on a spot basis ... not so much.

This should greatly incentivize customers such as Japanese, Turkish, and Indian utilities to enter into firm purchasing agreements.

The ripple effect should make for a much more favorable climate for pending US LNG projects to obtain financing which has been the main stumbling block this past year.

Fast and furious:

• Switzerland: public transportation shut down in Zurich; heavy snowfall;
• China blinks: may allow imports of Australian coal;
• Venezuela: one step closer -- to losing Citgo;
• Norway: to increase production to more than 2 million bpd from 1.7 million bpd now; mostly from the giant Johan Sverdrup field (global warming? EVs?)
  

Electronic land posting: link here.