Spot prices of liquefied natural gas (LNG) retreated in Asia as the threat of imminent strike action at three Australian plants eased, but solid fundamentals are keeping prices elevated for future deliveries.
The LNG spot price for delivery to North Asia slipped to $13.00 per million British thermal units (mmBtu) for the week ended Aug. 25, down from $14.00 previously, but still 44% above this year’s low of $9.00 from early June.
The retreat came as Woodside Energy (WDS.AX) reached an agreement with labour unions at its North West Shelf LNG facilities in Western Australia, averting industrial action that had been set to begin early next month.
However, workers belonging to the same unions voted to authorise strikes at two LNG plants in Western Australia operated by Chevron (CVX.N), although it will likely be several weeks before any industrial action.
Chevron’s Gorgon and Wheatstone projects account for about 5% of global LNG supply, but industrial action is unlikely to have an immediate impact on shipments as it is likely to start with low-level activities such as overtime bans.
The risk is that Chevron and the unions are unable to bridge their differences and the action escalates to the point where cargoes are cancelled.
This would probably happen around October and November, just as Asian demand for the super-chilled fuel accelerates to meet peak winter demand.
Already there are signs that prices are likely to increase for the northern winter, with increases being seen in New York-traded contracts linked to the benchmark S&P Global Commodity Insights Japan-Korea Marker.
The front-month contract, which matures on Sept. 13, ended at $13.46 per mmBtu on Aug. 25, while the contract that matures on Dec. 15 finished at $18.25.
The December contract was at $17.61 per mmBtu a month ago, which means it has risen 3.6% over the past four weeks.
The December contract is also at a premium of 35.6% to the front-month future, which suggests market participants are expecting a tighter market for the northern winter.
Source : Reuters