Prices for liquified natural gas (LNG) have skyrocketed to record levels, up around 1,000 percent since July last year, as freezing temperatures across Asia have boosted demand and hit stockpiles, leaving tankers in a traffic jam as countries already face energy shortages.
South Asia has been a critical growth market for LNG in recent years as major energy players such as China, India and Pakistan have sought to move their energy generation towards gas. The price spike in the LNG market has already led to energy shortages, with crucial global infrastructure straining to keep up with global demand.
“The ships are piling up at the Panama Canal, they cannot get through the Panama Canal fast enough. All this together has meant some buyers of LNG, particularly in Japan, have found themselves short, Robin Mills, CEO of energy strategy firm Qamar Energy told Al Arabiya.
Contributing the shortages, major LNG players, such as Norway, Australia, Malaysia and Qatar have all faced issues, Mills explained, with the cold weather meaning countries are exporting less gas leaving LNG to pick up the shortfall.
“We had cold weather in central Asia, which has meant central Asian countries have been sending less gas by pipeline to China, so China has to make up for that with more LNG imports. Also, we had logistical problems, so now we are trying to move a lot of LNG from the US to Asia, it is quite long voyage,” Mills said.
China is the world’s key LNG importer, and its biggest consumer, followed closely by Japan. China’s role in changing the LNG market for the future has been crucial, with the country planning to double its share of gas use by the end of the decade, Mills said.
The Asian giant’s expansion plans will likely leave China with significant room to control the LNG sector, with buyers targeting the country as a key market in the future.
“If you look at the new projects around the world including the new US projects, they have been targeting China as a key market. Will China try to get more control of this market? I think China will want a price benchmark of its own, it will want to have a price to say, ‘this is the price of gas in China,’” Mills explained.
Plants in the US are already “producing flat out,” Mills added, noting that the cost to hire an LNG tanker has risen sharply, leaving the vessel as the “most expensive ship of any type that you can hire.”
Analysis by S&P Global Platts released last week estimated that LNG shipping rates had hit a multi-year high of $300,000 per day in January. The firm also found that Panama Canal passage wait times for Asia-bound LNG tankers from the US Gulf Coast without a reservation were as long as 13 days by the end of 2020.
“They can’t get to Asia fast enough because the Panama Canal is already full of vessels, so these ships in January, February will get through the Panama Canal and start arriving, and the prices will come down again but they haven’t been quick enough yet,” Mills said.