Growing global gas demand to end Asian LNG spot market?

Experts question whether the nascent spot market for liquefied natural gas (LNG) in Asia could disappear if excess supply replaces nuclear in Germany and Japan


Natural gas has traditionally been bought and sold via long-term contracts of as much as 20 years, linked to the price of crude oil. However, an abundance of natural gas in recent years – thanks in part to increased supply in the US from shale resources – has encouraged the development of an Asian LNG spot market.

“My view is that the LNG market has left phase one – very long-term contracts of as much as 20 years historically between mostly Middle East suppliers and Asian buyers,” says Rodney Malcolm, managing director, commodities at Citi. “The global economic downturn resulted in increased supply globally combined with decreasing demand, resulting in a bit of excess supply. That excess supply has helped to free up cargoes for the spot market. There have been a number of cargoes, but I wouldn’t call it a very robust spot market at this point.”

But global demand for natural gas has risen again in recent months. Japan's nuclear disaster in March prompted the government to shut down 6,800 megawatts (MW) of nuclear generating capacity. Germany followed suit by announcing a plan to shut down all of its nuclear plants by 2022. This has pushed up demand for other fuels, such as natural gas, eating into the excess supply that was feeding the Asian LNG spot market.

Richard Rosenberg, vice president of business development at Icap Energy, says: “Because of the new demand for LNG around the world, spot gas prices have moved back in line with crude and the push to reference gas prices in natural gas contracts has probably lost some if it’s energy.”

As a result, Rosenberg says he is “no longer confident” that the market will move towards spot pricing for LNG. “While we had an excess of LNG supply in the market over the last couple of years, those supplies are starting to become more balanced,” he notes.

Earlier this year, Citi completed the first financial LNG swap. It was priced against Platt's Japan-Korea Marker (JKM) index, and based on this experience Malcolm believes the developing LNG spot market is here to stay. “The volumes making their way into the spot market have slowed down a little as a result of the lack of shipping currently, but a reversion to just a term market is not necessarily happening,” he says.

The term and spot markets for LNG in Asia will co-exist, Malcolm argues, adding that market participants Citi has worked with in the region value the benefits arising from the flexibility that a spot market can provide.

“I’ve seen a number of markets develop and I believe this market is still relatively immature, but it has reached a point where enough buyers and sellers are able to realise the benefits a spot market offers,” he continues. “They will likely still find ways to be able to supply into and buy from the spot market and I think that is going to allow it to stay in place. It may have lower volumes for a time while supply goes elsewhere, but there is a lot more supply coming on and that may once again start to outweigh the potential increased demand from Japan and Germany as a result of [recent] nuclear power plant closures.”

Extra supply could come from the US in future. Cheniere Energy has received federal approval to be the first to export US-produced natural gas from a bidirectional LNG terminal in Louisiana. The terminal will have send-out capacity of 4 billion cubic feet per day (bcf/d) and storage capacity of 16.9 bcf-equivalent. This could tap into the vast natural gas resources in the US, boosting global LNG supply to some extent. However, Cheniere does not expect the terminal to be operational until 2015.

Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.

To access these options, along with all other subscription benefits, please contact or view our subscription options here:

You are currently unable to copy this content. Please contact to find out more.

You need to sign in to use this feature. If you don’t have a account, please register for a trial.

Sign in
You are currently on corporate access.

To use this feature you will need an individual account. If you have one already please sign in.

Sign in.

Alternatively you can request an individual account here