Suez blockage boosts Asia LNG price, but it probably shouldn’t: Russell

The price of spot liquefied natural gas (LNG) in Asia has moved higher amid the blockage of the Suez Canal, but it’s doubtful it needs to as the delays to shipping to the region will likely only have a marginal impact on supply.

The spot LNG price rose to $6.80 per million British thermal units (mmBtu) in the week ended March 26, up from $6.50 the prior week and the highest in a month.

LNG futures in New York did even better, ending at$6.93 per mmBtu on March 26, up 7.9% from the last price a week earlier.

Also read: Trade via cargo containers comes under impact of Suez Canal logjam

In some ways it’s not surprising that spot LNG prices have shifted higher, as the unexpected blockage of a major shipping transit point introduces a level of uncertainty and volatility to the market.

Efforts to free the Ever Given container ship, stuck in the canal since last Tuesday, were still successful as of late Sunday Egyptian time.

But an analysis of how LNG usually flows around the globe shows that only small volumes move to Asia through the Suez Canal.

Rather, the main LNG flow through the canal is from major Gulf exporter Qatar to purchasers in Europe, meaning that delays and re-routing of vessels around the longer Cape of Good Hope route will largely impact supplies to Europe.

Also read: ‘Perfect storm’ brewing with grounding of ship on Suez Canal

The United States has in recent years emerged as the third-biggest supplier of LNG to global markets, and has made inroads into the top-consuming region of Asia from export terminals along its east coast and in the Gulf of Mexico.

However, no US cargo currently sailing is heading for the Suez Canal, although as many as five laden ships appear to have been diverted to avoid the blockage, according to vessel-tracking data compiled by Refinitiv.

A total of 16 vessels carrying U.S. LNG are currently enroute to Asia, the majority having used the Panama Canal to access faster sailing times to north Asia, home to the world’s three-biggest LNG buyers, Japan, China and North Korea.

India affected

Cargoes from the US that use the Suez Canal are usually headed to India, and there are currently three vessels signalling destinations in India. All three appeared headed to round the bottom of Africa via the Cape of Good Hope.

While this will impact delivery times for those three cargoes, and potentially cut the profit for the cargo owners given the additional sailing time, the volumes involved are too small to have much impact on prices in Asia.

What may make more of a difference is the likelihood of increased cargoes being made available by Qatar to buyers in Asia.

If Qatar is unable to ship through the Suez, it may prefer to sell cargoes to Asian buyers, rather than wear the additional costs and time associated with sending vessels around the Cape of Good Hope.

If the Suez blockage lasts for some time yet, it may perversely have the effect of boosting the amount of LNG available to Asian buyers, while cutting that to Europe.

Of course, US LNG may well find a price incentive to sell more to Europe than Asia, assuming natural gas prices in Europe outperform those in Asia.

Also read: Ever Given blockage: Over 200 ships caught in traffic snarl

The price of day-ahead natural gas in the United Kingdom rose 9.6 per cent last week to end at 44.91 pence per therm, equivalent to about $6.40 per mmBtu.

While that is below the price for spot LNG in north Asia,the British price doesn’t include the cost of freight, and adding in those costs of at least 50 cents per mmBtu means that the delivered prices are currently similar.

If the Suez blockage continues, it may delay as much as 1million tonnes of LNG for delivery to Europe, meaning natural gas prices there may rise further in order to draw spot cargoes from the United States and from the west coast of Africa, hometo exporters Nigeria and Angola.