Asia LNG prices stabilise as China expands imports of cheap Russian supply

China's imports of Russian LNG hit 671,105 tonnes in August, close to a two-year high, official data noted. PHOTO: EPA-EFE

SINGAPORE - Prices of liquefied natural gas (LNG) are levelling out in Asia thanks to a move by China to buy less on the global market and more from Russian sellers desperate to strike deals on the sidelines.

Russia is scrambling to sell energy exports like LNG and crude oil, given the sanctions imposed by many major markets in the wake of its invasion of Ukraine in late February.

China's indifference to Western sanctions means it can easily take advantage of Moscow's desperation to sell LNG at attractive and preferential discounted prices.

The deals it is making with the Kremlin means it does not have to compete with other buyers on the world market - especially Europeans rushing to build up LNG supplies before winter - and this is helping keep global prices capped.

Mr Toby Copson, global head of trading and advisory at Trident LNG, said Asia and Europe have benefited significantly from China's lacklustre dealings in the LNG spot market.

"If they had been competing, prices would have been several magnitudes higher due to how tight the market has been," he added.

China's imports of Russian LNG hit 671,105 tonnes in August, close to a two-year high, official Chinese data noted on Tuesday.

Imports from Russia were also up 36.7 per cent from the same period in 2021 and 63.8 per cent ahead of July's 409,682 tonnes.

Mr Copson added that China has been a crafty seller of LNG as well. "It has been selling contractual volumes from its portfolios and hedging those sales in effect with cheaper Russian supply at a discount, so commercially, it's been a clever move."

Mr Henning Gloystein, director of energy, climate and resources at Eurasia Group, said some of the Russian LNG cargoes bought by China at steep discounts could likely have been resold into the European market at higher prices.

Mr Ciaran Roe, global director of LNG at S&P Global Commodity Insights, said he expects China to expand its purchases of Russian LNG over the next few months.

"Recently, a larger number of short-term cargoes became available from Russia's eastern LNG plant in Sakhalin, and it is likely these cargoes will end up in China due to proximity and buying appetite," he added.

China's indifference means it can easily take advantage of Moscow's desperation to sell LNG at discounted prices. PHOTO: REUTERS

The average LNG price for spot cargo being delivered in November to north-east Asia is estimated at US$45 to US$50 per million British thermal units, according to industry sources, markedly lower than October, when it is estimated to be around US$57 to US$60.

However, they remain higher than levels seen late in the second quarter when prices were estimated to be around US$25 in May and about US$38 in June.

Mr Copson said that while other large regional buyers like Japan and South Korea have fulfilled their initial procurement requirements for the start of winter, the market still remained fairly bullish and volatile.

"While pricing has come down and seems to be flattening for the last week or so due to Japan and Korea being in a better position, I expect prices to remain elevated as the macro situation still shows high demand and a hungry Europe, this will keep Asian buyers having to push bids to compete and secure LNG supplies," he said.

"It also appears we may be in for a cold winter, so whatever buffer North Asia has may be depleted quicker, keeping them active near term for spot supply."

Dr David Broadstock, senior research fellow and head of the energy economics division at the National University of Singapore’s Energy Studies Institute, cautioned against thinking that global market conditions have stabilised.

He said: “The conditions which triggered the uncertainty may have stabilised but it has not reversed. Now the tables have turned in that conflict and Ukraine is gaining in the war. But Russia wants to push back and that could have consequences.”

On Wednesday, Russian President Vladimir Putin ordered Russia’s first mobilisation since World War II, warning the West that if it continued what he called its “nuclear blackmail”, Moscow would respond with the might of all its vast arsenal.

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