Japan and China turn to natural gas conservation as LNG price volatility increases

Asian countries that typically buy huge volumes of LNG are gearing up to buy expensive cargoes and book excess volumes as the risks of a colder winter and continued competition with Europe fuel market volatility.

Natural gas prices in Asia have been falling steadily for more than a week, following the Dutch Title Transfer Facility (TTF) benchmark for gas sold in Europe. Short-term forecasts of warmer weather and above-average storage levels on the continent sent European prices tumbling and hinted at a slight shift in market dominance in favor of Asian buyers.

However, the growing potential for storage shortages in Europe and soaring ship prices are putting pressure on Asian governments as they review winter forecasts.

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In response, Japan – the world’s largest importer of liquefied natural gas – is drawing up contingency plans to nationalize LNG supply for utilities and restrict natural gas consumption.

A package 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 companies are unable to meet demand. They would also allow regulators to order large industrial users of natural gas to reduce their consumption in the event of a shortage.

Japanese Commerce Minister Yasutoshi Nishimura told reporters at a conference on Friday that the bills would be presented to the National Diet, the country’s legislative body, “as soon as possible” and could be enacted by now. december.

The legislation is the latest in Japan’s efforts to secure energy supplies as LNG prices are pushed to record highs by the natural gas crisis in Europe. Earlier in the year, Prime Minister Kishida Fumio ordered trade officials to draw up a plan by the end of the year to restart the country’s nuclear generating capacity.

Another of Asia’s main LNG buyers, China, has ordered its state energy traders to end the resale of LNG cargoes to Europe. Traders in the country previously received bounties for some of its spare shipments thanks to its substantial volumes under long-term contracts.

China’s National Development and Reform Commission, its top economic authority, has sent directives to companies like PetroChina Co., Sinopec and Cnooc Ltd. to prioritize domestic demand, Bloomberg reported Monday. Between reduced energy consumption due to Covid-19 lockdowns and increased domestic natural gas and coal production, China ceded its brief position as Japan’s largest LNG importer last year. .

In a note from Evercore Inc., analysts wrote that growing cracks in the storage scenario in Europe could be exacerbated by growing risks of a cold winter in Asia, pulling more LNG cargoes off the market.

LNG tanker rates to Asia have also risen well above average October prices and are expected to continue rising 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 above the year-to-date average.

“At the end of the day, therefore, it is not surprising that we are now seeing charterers in the market for 2023 tonnage, because while current sentiment keeps next year’s rates high, this year has given us learned that the most expensive shipping is actually no shipping,” Fearnleys analysts wrote. .

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