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Sea change: LNG tankers divert to China as winter gas shortage bites
[SINGAPORE] Liquefied natural gas (LNG) is being re-exported to China from Japan and tankers are being diverted from as far away as Brazil, with traders rushing to find cargoes in the face of a supply crunch in the world's No 2 economy as winter bites.
Following an unprecedented drive to switch millions of households to natural gas from coal for heating, China's imports of LNG have surged as utilities struggle to meet soaring demand as winter gets off to a colder start than usual.
"We expect to see many more LNG cargo diversions to China over the winter period," said Saul Kavonic, an analyst at energy consultancy Wood Mackenzie in Singapore.
"Given China's limited gas storage, it will be particularly reliant on spot LNG purchases to meet demand."
Chinese imports now include cargoes from Japan, itself by far the world's biggest consumer of LNG, and which is also entering winter.
The 150,000 cubic metre (cm) Neo Energy left Japan's Shimizu terminal on Dec 1 and delivered LNG this week to the floating storage and regasification unit (FSRU) Cape Ann, which is sitting outside the port of Tianjin in eastern China, shipping data in Thomson Reuters Eikon showed.
A spokeswoman for Japan's Shizuoka Gas said the company was "involved in re-export business on a day-to-day basis".
This Chinese demand has pushed up spot LNG prices LNG-AS by more than 80 percent from their 2017 lows to above US$10 per million British thermal units (mmBtu), a January 2015 high.
That puts spot prices significantly above LNG prices linked to the price of Brent crude oil, which are trading around US$8 per mmBtu.
"If you usually import under long-term deals linked to oil markets and have available cargoes, this is the time you'd want to sell," said an LNG trader, speaking on condition of anonymity as he was not allowed to talk about commercial deals.
The urgent need for spot cargoes has also boosted rates for LNG tankers.
The daily rate for a 160,000 cm LNG tanker has shot up to US$80,000 this month from a 2017 low of US$30,000 in April, according to data from ship broker Clarkson and Fearnley.
This has led to a jump in share prices of listed LNG tanker owners like Gaslog and Teekay LNG Partners.
ACROSS THE PACIFIC
Thanks to much lower prices in the America's, LNG cargoes are also coming from across the Pacific.
The 147,000 cm Esshu Maru tanker was initially scheduled to deliver US LNG from Cheniere Energy's Sabine Pass to Pecem in Brazil on Dec 22, but it was diverted to the Pacific, passing the Panama Canal this week, shipping data showed.
Another LNG tanker, the 148,000 cm Gaslog Santiago, had been making supply runs in the Americas in the past month, but is about to enter the Panama Canal and then the Pacific Basin for the first time in at least half a year.
Its destination in the Pacific was not immediately clear.
Compounding China's gas shortage is the La Nina weather pattern, which triggers cold winters in Asia's northern hemisphere.
Weather data in Thomson Reuters Eikon shows average daily temperatures in Beijing of minus six degrees Celsius this week, around two degrees below the seasonal norm.
Cold weather is also dominating Japan and South Korea, meaning by far the world's three biggest LNG importers are seeing a winter demand spike, which will likely support LNG prices for the coming months, traders said.