• Eleven-year high of $US32.50/MMBTU reached this week on Asian LNG spot market
  • ‘Much of the LNG price spike has been driven by cold weather, supply disruption and a lack of shipping capacity’: WoodMac
  • ASX Gas Stocks Guide: Everything you need to know

 

Higher LNG prices in the booming Asian market are filtering through into the share prices of ASX gas companies this week.

Producers Woodside Petroleum (ASX:WPL) and Santos (ASX:STO) have seen a ~15 per cent advance in their share prices since January 1.

Cargoes of LNG including from Australian producers for delivery in February to customers in Japan, Korea and Taiwan are trading at $US32.50 per million British Thermal Unit (BTU) ($42/MMBTU) — their highest level since 2009.

Several factors have combined to drive LNG cargo prices higher in Asia, including freezing temperatures for the northern hemisphere winter, supply issues and transport difficulties, and  China’s aversion to coal shipments from Australia.

The price of LNG jumped by 31 per cent or $US6.77/MMBTU in one day alone this week, as Asian buyers competed fiercely for the limited number of available spot cargoes for February shipment, according to S&P Global Platts.

Last year saw a prolonged period of flat prices and sluggish market activity for LNG cargoes destined to Asian markets on account of the COVID-19 pandemic.

Asian LNG prices reached rock bottom in early 2020, and averaged only $US3.90/MMBTU last year.

 

LNG gas prices surge
Prices for LNG cargoes for February delivery to North Asian customers surged to 11-year highs this week. Image: S&P Global Platts

 

Spike in LNG prices set to be short-lived

Price analysis experts at Wood Mackenzie said this week that LNG prices will start to decline from their current high level in the April-June 2021 quarter.

“Much of the LNG price spike has been driven by cold weather, supply disruption and a lack of shipping capacity, and delays at the Panama Canal,” said Wood Mackenzie vice-president, Massimo Di Odoardo.

But, he added that the current spell of chilling temperatures in the northern hemisphere could signal that supply tightness in the market could stay for some time.

This is despite an increase of 17 million tonnes this year in the global LNG supply.

“With the current cold spell expected to continue throughout most of January, Asian LNG demand in Q1 2021 will remain strong, paving the way for additional demand for LNG stocking in the summer across North Asia,” said Di Odorado.

“This in turn, will reduce the pressure on Europe to absorb excess LNG supply in the summer.”

Wood Mackenzie gas market analysts expect LNG prices will average $US7.60/MMBTU in 2021, around double 2020 levels.

Smaller ASX gas stocks also stand to share in the revenue bonanza from higher LNG prices in the Asian market, and there are more than 100 listed on the ASX.

They include Armour Energy (ASX:AJQ) which last week sold some of its South Nicholson Basin permit interests to Santos, plus Beach Energy (ASX:BPT) with its North West Shelf projects.

And Blue Energy (ASX:BLU) which signed a supply agreement with utility Energy Australia for its Queensland coal seam gas projects.

LNG industry faces decarbonisation challenge

Challenges lie ahead for the LNG industry as industrialised countries around the world, including Japan, Korea and China, make pledges to reduce carbon emissions from their economies and fossil fuel use.

“Decarbonising natural gas will become a strategic priority for the gas industry,” Di Odoardo said.

Low carbon emission ‘blue’ hydrogen can be produced from natural gas.

Around 75 per cent of world LNG demand is from countries with carbon neutral goals, which could accelerate some current industry trends in energy use.

“Gas players will have to show commitments to decarbonise natural gas, including through carbon capture, utilisation and storage and blue hydrogen,” said Di Odoardo.

Incoming US president Joe Biden has announced an ambitious plan to accelerate the US economy’s transition to lower carbon emissions under a $US2 trillion Clean Energy Revolution plan.

“A change to reach net-zero carbon emissions in the power sector in 2035 will require a dramatic shift from the current environment,” said Di Odoardo.

LNG shippers are also facing another challenge in the rise of hydrogen as an exportable commodity for Asian energy users.

ASX company Global Energy Ventures (ASX:GEV) has commissioned a prototype ship to transport hydrogen exports from Australia.

The C-H2 ship has an innovative design that allows it to carry compressed hydrogen and the vessel is currently undergoing a scoping study.

 

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