IEA: Global LNG market tightness induces shifting trade patterns in Asia

The rapid tightening of the global LNG market and Europe’s emergence as the new premium market for LNG have prompted profound changes in LNG trade dynamics across Asia, the International Energy Agency (IEA) said in its latest Quarterly Gas Market Report.

“Spot LNG trade—unsurprisingly—has seen a disproportionate decline so far in 2022 as record high prices have driven price-sensitive Asian buyers away from spot purchases. Between January and July 2022, the monthly volume of spot LNG imports into Asia fell by more than 60% (before slightly recovering in August). During the first 8 months of 2022, Asian spot LNG imports were down by 28% year-on-year, a much steeper decline than the 7% y-o-y drop in the region’s total LNG imports over the same period,” IEA said.

According to IEA data, the biggest y-o-y decreases in volume terms occurred in China (down 59%), Japan (down 17%), Pakistan (down 73%) and India (down 22%). China alone was responsible for 80% of the net reduction in the Asia’s spot LNG purchases in January-August 2022 as the country’s appetite was tempered not only by high prices, but also by mild winter temperatures, weakening economic activity, Covid-related lockdowns, and strong coal and renewable generation growth in the power sector.

“The collapse of spot LNG sales into Asia by no means signifies a lack of interest in securing prompt LNG shipments. Asian importers issued buy tenders for a record number of spot cargoes in 2021 (close to 400), and the number of cargoes sought in short-term tenders (defined as having a delivery window of less than 1 year from tender close) remained at highly elevated levels (well over 200) in the first 8 months of 2022 also. However, in the same period nearly 40% of the tendered cargoes were not awarded due to excessively high bid prices (compared to a rejection rate of 35% in 2021 and an average of less than 20% in 2015-20). Therefore, the collapse in spot imports in most cases meant that buyers without term contracts were simply priced out of the market and could not secure the LNG they needed at an acceptable price,” IEA said.

However, as IEA noted, China was a notable exception. Due to the drop in LNG demand for reasons beyond high prices, some Chinese buyers had excess LNG, which they sought to resell on the spot market. As a result, Chinese entities offered about 30% more LNG on sell tenders during the January to August 2022 period than they sought to buy over the same timeframe. LNG reloads in Asia were also at an all-time high and jumped by 48% y-o-y in the same period, reflecting the incentive to redirect flexible LNG supplies to Europe.

“These changes reflect the new reality that Asia—with its limited toolkit—has been the primary balancing market for flexible LNG flows in 2022 to date. In the near future, China in particular could see its market balancing role further enhanced with the expected increase in flexible LNG volumes in its contract portfolio,” IEA said.