Prices of Asia’s natural gas jumped this year — in tandem with crude — as most of the region’s long-term LNG contracts are linked to oil prices, Rajiv Biswas, Asia-Pacific chief economist at HIS Markit, told CNBC in an email.
“With world oil prices having moved higher in recent weeks as US sanctions on Iranian oil exports will be implemented in November, this is contributing to further upward pressure on Asian LNG contract prices,” he added. Average Chinese gas import prices jumped 23 percent compared to a year ago in the second quarter, while Japanese contract prices were up 17 percent in the same period.
When U.S. sanctions on Iran kick in next month, they could push oil prices to above $90 per barrel, some analysts predicted. During Asian trade on Tuesday afternoon, Brent crude was at $81.04 per barrel, and U.S. crude futures at $71.84 a barrel — up from above $60 per barrel at the start of this year.
Asia’s spot LNG market — which has been growing steadily — will also be hit in the short term. Biswas expects Asian spot prices to move even higher to $11.85 per million British thermal units (mmBtu) by January 2019. Spot prices for the October delivery in Asia were at $11.40 per mmBtu, up 30 cents in a week, according to a Aug. 24 Reuters report.
Meanwhile, supply from Australia, the world’s largest exporter of LNG, is tightening as domestic demand is fighting for a share of the pie with Asia. That situation will remain until 2028, according to Nicholas Browne, director of gas and LNG research at Wood Mackenzie.
The bulk of growth in Asian demand is coming from China, as it switches from coal to gas.
Chinese demand has jumped 150 percent between 2017 and 2018 — making up half of the global demand growth, according to Wood Mackenzie in a report. China is expected to import record amounts of LNG again this winter, Browne added.
But Wood Mackenzie’s supply forecast for Australia shows that “from 2028 there is not enough gas to meet both LNG contracts and demand,” Browne said. “More gas will need to be developed and commercialised, or LNG imported, to meet the needs of both the domestic market and to fulfil LNG contracts.”
“However, no new easy and economical sources of supply are currently available to the market,” he concluded.
That could hit major buyers of Australian LNG, such as China’s Sinopec and Malaysia’s Petronas, Browne said.
According to a Wood Mackenzie report this week, some decisions surrounding future new LNG projects in Russia, the U.S. and Qatar might be coming up, while producers in Southeast Asia may expand their facilities to meet the demand.