LNG trade reached 319 million tons in 2018, this demand growth are led by Asian countries such as China, India, South Korea and Pakistan, 37 million tonnes of new LNG capacity added in 2018, moreover 35 millions of tonnes additional supply expected in 2019, this is due to coal to gas switching. Biggest exporter are Qatar, Australia, USA and Russia.
Here is the price chart of natural gas in Henry Hub, which is the US benchmark. As natural gas is a seasonal commodity, the demand has an impact on prices: the demand of LNG grows during the winter because people need to heat their home. At this period, the quantity of LNG is low, because people are cold, they need a lot of LNG and the demand increases. That is why we can observe these peaks in December and January. More over since 5 year the price never reached this high in December, this is due to china doubling imports of LNG to counter air pollution, which represented 176 million tonnes of carbon reduction in China winter air quality.
The price of natural gas decreased in the middle of February and raised slowly in March because spring is coming.
Here is the graph of the UK National Balancing Point, which is the natural gas’ reference for Europe. This graph also shows the seasonality of this commodity.
For the Asian market, there is the JKM, the Japan Korea Marker as benchmark for spot physical cargoes of LNG. These cargoes are delivered into Japan, China, South Korea and Taiwan. These countries represent the majority of global LNG demand.
This graph also shows how the weather influences the price.
Firstly, the alternation between the winter and summer season leads to regular variations during each year.
Secondly, we can distinguish the European hub destination price from the 3 others (Southeast Asia, Latin America and Australia) due to Russia, Algeria and Norway supplies.
Moreover, the correlation between the crude oil price from Saudi Arabia in particular and the LNG price play a major role in the demand. Indeed, an increase of crude oil price encourage the substitution of natural gas, which would increase the LNG demand. Therefore, the LNG price will rise if the supply stays constant or decrease.
It is probable that the current Khashoggi affair would bring out the rise of crude oil supply from Saudi Arabia in order to stifle this big incident in the Istanbul consulate.
Under pressure, the Saudi kingdom had to admit Mr Khashoggi’s killing.
Therefore, a collapse of price of LNG in Europe in particular significant at this time, leading to losses in factories.
Finally, the cooperation between Russia and South Korea for an increase of LNG purchase from Russia, in order to diversify Korean gas imports channels, is developing. The benefit of localisation is leading to this initiative of “gas bridge”.