Heatwaves are fueling increased spot LNG purchases in Asia, according to Rystad Energy.
Arbitrage opportunities for US-origin liquefied natural gas (LNG) for September delivery to Asia were short-lived, opening on July 4 and 7, but closing again on July 8, Rystad Energy said in its latest update.
Due to the current weak shipping environment, most portfolio players, trading houses, and other suppliers with access to US-origin LNG consider shipping costs to be sunk.
This allows arbitrage to Asia to remain open at present levels.
High temperatures in key Asian demand centers like Japan and South Korea are expected to maintain pricing support and keep the Asia-Pacific region more attractive than the Atlantic Basin, Rystad said.
However, this outlook is susceptible to rapid price increases driven by geopolitical risks or sudden policy shifts in the European Union or the United States, the Norway-based energy intelligence firm added.
“For US exporters, most LNG cargoes continue to flow toward the Atlantic Basin, though Asia may become an option if prices in the Asia-Pacific rises higher than that of European LNG delivery prices,” Masanori Odaka, senior analyst at Rystad, said in an emailed commentary.
Suppliers are trying to figure out whether large scale importers like Japan’s Jera and South Korea’s Kogas will buy additional LNG.”
Asia demand
Although spot LNG demand in Asia continues to originate from trading houses and portfolio players, import volumes in major LNG-importing nations like Japan and South Korea indicate that cargoes acquired by these entities are ultimately being delivered to these countries.
With an ongoing heatwave, the market is anticipating further buying interest from Jera and other Asian importers, such as Kogas.
This comes after spot purchases for September delivery were made by Tohoku Electric and for October delivery by Japex.
Some utilities are unlikely to purchase spot LNG, even if additional buying interest emerges.
For example, Hokkaido Electric’s 569.4-MW Ishikari gas-fired power plant unit 1 will undergo planned maintenance from July 1 to October 30, according to Rystad.
For July and August, Western Japanese power utilities have limited purchasing interest.
The limited purchasing interest is due to a year-on-year increase in available nuclear capacity of 14% and available coal-fired power plant capacity of 3%, the energy firm said.
High power prices
Given Japan’s sustained high power prices, utilities like Jera are expected to increase their spot LNG purchases for August and September, Okada said.
The increase in purchases could be due to a positive spark spread for both months at Jera’s more efficient power plants, including the Joetsu, Shin-Nagoya, and Futtsu units.
Lower power prices in Western Japan disincentivise utilities from locking in profits for August and September delivery.
The move is largely due to the fact that nine of the thirteen nuclear power plants in the region are expected to be operational for most of August and September.
Compared to last August, Japan boasts 1.2 gigawatts (GW) – or 13% – more available capacity this August, according to Rystad.
This increase is expected to reduce LNG consumption by roughly 200,000 tonnes as baseload.
Furthermore, September sees an additional 200 MW of available capacity year-on-year, representing a 2% increase, the agency added.
Although South Korea has the potential to import more spot LNG in the third quarter of 2025, this is counteracted by scheduled maintenance at 17 gas-fired power plants, the agency said.
The South Korean plants are operated by utilities including Korea Midland Power, Korea Western Power, and Korea District Heating Corporation, with maintenance planned as of July 8.
Rystad added:
This maintenance will affect around 2.48 GW of nameplate capacity, compared to 6.46 GW on 5 July last year.
Europe
Since June 26, Northwest European LNG prices for August have hovered around $11 per MMBtu.
This maintains a discount of 40 to 50 cents per MMBtu relative to the Netherlands-based Title Transfer Facility (TTF), which is an improvement over the 15 to 30 cent discount observed between June 16 and 20, according to Rystad’s Okada.
For the third week of July, major European cities are forecast to experience temperatures 3 to 4 degrees Celsius higher than their 22-year average.
Norwegian gas flows have increased by 3.6% week-on-week, reaching approximately 319 million cubic meters per day (MMcmd).
This rise is attributed to the recommissioning of Ormen Lange, despite ongoing maintenance at the Troll and Kaarsto facilities.
Nigeria LNG’s utilisation has consistently risen above 70% in July, a level not seen since May, data from Rystad showed.
Due to favorable economics, cargoes from Nigeria will continue to flow to the Asia-Pacific region, which is preferred over Europe as a destination.
US demand
Front-month Henry Hub gas prices for August decreased by 2% week-on-week, reaching $3.3 per MMBtu.
The decline in prices coincided with a significant drop in feedgas levels to several LNG projects, including Corpus Christi, which saw reductions of 21% to 23% between July 7 and 9 compared to prior levels.
US-origin LNG exports continue their journey to the Atlantic Basin.
However, the extended voyage to Asia via the Cape of Good Hope offers suppliers ample opportunity to divert LNG cargoes to the Asia-Pacific region if prices there were to outpace those in Europe, Rystad said.
Elevated gas-for-power demand is expected in most US regions due to above-average temperatures in mid to late July.
The agency said:
Elsewhere, supply from LNG Canada will continue to ease the need for Asian importers to attract LNG from other regions as the project can supply LNG significantly quicker than other North American projects on the Gulf Coast.
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