Chart of the day: Rising demand leads to flare up LNG prices

Spot LNG prices are rising on winter demand from northeast Asia and supply constraints, which could impact India’s imports.

Japan is entering the winter season with all its 50 nuclear reactors shut down, South Korea is also facing problems on the nuclear power front, while China is ramping up LNG imports to reduce the pollution caused by coal-fired power plants.

All this has led to rising demand for spot LNG with prices moving up from $14 per unit at the beginning of October to $17.6 in December.

A lack of available volumes from leading suppliers has also been a pivotal factor underpinning the winter price spike. Over the past two years, spot LNG availability has reduced as buyers opt for 2-5 year contracts and by the underperformance of a number of liquefaction plants, according to Ben Wetherall, LNG Analyst, ICIS.

The spike in prices could hamper utilisation at Petronet LNG’s Dahej unit, fear analysts. The Dahej terminal is witnessing under-utilisation risk due to poor demand from power and industrial sectors, said a report from Antique Stock Broking.

The peak winter demand season could see some easing only after March ’14, but with no LNG supplies getting added in 2014, overall price levels would remain elevated.