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Japan, China Move to Conserve Natural Gas as LNG Price Volatility Rises
Asian countries that typically buy massive volumes of LNG are moving to build contingencies for procuring expensive cargoes and reserving excess volumes as risks of colder winter weather and continued competition with Europe sustain market volatility.
Asian natural gas prices have been steadily descending for more than a week, following the Dutch Title Transfer Facility (TTF) benchmark for gas sold in Europe. Short-term forecasts of milder weather and higher-than-average levels of storage on the continent have been dropping European prices and hinting at a slight shift in market dominance to Asian offtakers once again.
However, the rising potential for storage shortfalls in Europe and skyrocketing prices for vessels are putting pressure on Asian governments as they look at winter forecasts.
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In response, Japan – the world’s largest importer of liquefied natural gas – is developing emergency plans to nationalize LNG procurement for utilities and restrict natural gas consumption.
A set of bills passed by Japan’s executive cabinet last week would allow state-owned Japan Oil, Gas and Metals National Corp. (Jogmec) to purchase LNG for the country’s utilities when private firms are unable to meet demand. They also would allow regulators to order large industrial users of natural gas to reduce consumption during a shortage.
Japan’s Yasutoshi Nishimura, trade minister, told reporters during a Friday conference the bills would be introduced to the National Diet, the country’s legislative body, “as soon as possible” and could be enacted by December.
The legislation is the latest in Japan’s effort to secure energy supplies as LNG prices are driven to record highs by Europe’s natural gas crisis. Earlier in the year, Prime Minister Kishida Fumio ordered trade officials to form a plan by the end of the year to restart the country’s nuclear generation capacity.
Another of Asia’s other principal LNG buyers, China, ordered its state-owned energy traders to end the resale of LNG cargoes to Europe. The country’s traders had previously been receiving premiums for some of its spare cargoes from its substantial volumes under long-term contracts.
China’s National Development and Reform Commission, its top economic authority, has sent directives to firms like PetroChina Co., Sinopec and Cnooc Ltd. to prioritize domestic demand, Bloomberg reported Monday. Between reduced energy consumption from Covid-19 lockdowns and an increase in domestic natural gas and coal production, China ceded its brief position as the largest LNG importer last year back to Japan.
In a note from Evercore Inc., analysts wrote that growing cracks in Europe’s storage scenario could be exacerbated by the growing risks of a cold winter in Asia, pulling more LNG cargoes off the market.
Vessel rates for LNG tankers to Asia also have risen well above average prices for October, and are expected to continue rising into next year, according to brokerage firm Fearnleys AS. The average spot rate for modern vessels reached around $425,000, up $60,000 week/week and more than $316,000 higher than the year-to-date average.
“Ultimately, it’s therefore no surprise that we now see charterers in the market for 2023 tonnage because whilst current sentiment is keeping next year’s rates high, this year has taught us that the most expensive shipping is in fact no shipping,” analysts with Fearnleys wrote.
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