Asian spot gas prices lower than Britain’s in 5 years

LONDON – Spot gas prices in key East Asian markets have fallen below British wholesale levels for the first time since May 2010 amid a global oversupply, ICIS data shows.

The ICIS East Asia Index for March 2015 settled at US$6.85/million British thermal units (MMBtu – 45.63 pence/therm) recently, below the British March 2015 hub price of US$6.92/MMBtu (46.08 pence/therm).

On the same date last year, the EAX March 2015 price stood at US$19.84/MMBtu with the British equivalent contract at $9.90/MMBtu.

The ICIS Japan front-month spot price was assessed on Wednesday at its lowest level since June 2010, at US$6.875/MMBtu.

“A combination of weak winter gas demand across key importing Asian countries, additional global production and lower oil prices have hit market sentiment with spot prices falling fast,” said Ed Cox, editor at ICIS Energy.

The ICIS EAX is an average of spot price assessments for Japan, South Korea, Taiwan and China. The assessment reflects the price of liquefied natural gas (LNG) imports, which are the dominant form of supply for the first three countries and are increasingly important within China’s gas supply mix.

East Asian spot prices have traded at a big premium to Europe in recent winters amid high weather-driven demand, nuclear outages in Japan and higher oil prices. Oil prices directly determine the price of a majority of long-term LNG contracts in East Asia on a lagged basis.

British front-month gas prices are currently around 30% cheaper than at the same time last year. British demand has been lower than usual over the winter because of mild weather and lower consumption from the fuel generation sector.

British gas demand stood at just over 79 billion cubic metres (bcm) in 2014, down from over 85 bcm in 2013.

LNG imports accounted for around 25% of UK gas supply between October 2014 and the start of February. The UK sources most of its gas from domestic production and imports from Norway.

The ICIS East Asia Index is an arithmetic average of the DES (delivered ex-ship) front month and second month ahead assessments for Japan, South Korea, Taiwan and China. The index provides a measure of the commodity’s value across the East Asia region and is a reliable LNG reference price for the region as it incorporates a wider pool of demand centres.