LNG Markets Analysis: East Asia Spot Price Index Flips to Backwardation as Crude Pressures LNG Curve

SINGAPORE, January 21, 2015 /PRNewswire/ --

The price of Asian spot LNG for March delivery slipped below the expiring February '15 assessment as buyers anticipated sharply lower rates under their oil-indexed contracts in March and April.

The ICIS February East Asia Index (EAX) contract closed at $9.537/MMBtu on 15 January, a $0.750/MMBtu fall since becoming the front-month contract on 16 December 2014. The fall was outpaced by the March '15 contract, which dropped $1.169/MMBtu over the same period to $9.331/MMBtu.

The ICIS EAX is an arithmetic average of the DES (delivered ex-ship) front month and second month ahead assessments for Japan, South Korea, Taiwan and China. The index provides a measure of the commodity's value across the East Asia region and is a reliable LNG reference price for the region as it incorporates a wider pool of demand centres. 

Despite the weakness of Asian spot prices, the premium of Asian LNG prices to those in Europe widened slightly over the period as northwest European hub prices also softened in response to falling crude oil.

February opened as the front month on 16 December 2014 amid tepid demand in east Asia. South Korea's KOGAS was understood to be finalising supply discussions with Qatar's RasGas which would take it out of the February market, while outstanding February demand in Japan was limited to a few cargoes.

Pricing discussions focused on the effect of falling crude oil prices and the extent to which they had fed into the JCC (Japan custom-cleared) crude oil benchmark, the monthly average price of crude imported into Japan. Many contract prices in East Asia are indexed to JCC with a lag of around three months.

On 17 December, the November '14 JCC number was published at $86.93/bbl, reflecting a substantial fall but still implying significant headroom between February spot prices and their long-term equivalents.

Sellers also took comfort from the seeming stabilisation of crude prices above $60.000/bbl to maintain year-end offers above $10.000/MMBtu. On 19 December, the highest bid for H1 February was recorded at $9.900/MMBtu, while the lowest offer for the same window was heard at $10.400/MMBtu.

Two February trades were reportedly done over the holiday season around $10.000/MMBtu as winter storms hit Japan over the new year. By the second week of January, prices were under pressure from abundant supply and a new crude market rout.

Read further breakdown of the recent trade activities through this article link -  http://www.icis.com/lng-markets-analysis 

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For further information about this release, please contact:

Aileen Wang
Senior Marketing Executive, ICIS
Email: aileen.wang@icis.com 
Direct: +65-6780-4339