By Isabel Kua

SINGAPORE (Reuters – Asia’s liquefied gas (LNG), demand growth could slow as buyers balk at record high spot prices, pushed higher by Europe’s shift to the superchilled fuel during the Ukraine crisis.

Since late last year, high spot prices have already slowed trade. They are expected to slow demand growth in Asia, the biggest consuming region. Some countries also see a widening gap in gas supply as domestic production declines.

The announcement comes as LNG buyers from Asia, including the Philippines and Vietnam are poised to join the market this year.

According to PV Gas (Vietnamese state company), the market for LNG has changed in a negative way. The LNG supply is expected to become tight in 2021-2025, while the demand is increasing after the pandemic. PV Gas will trial its first LNG terminal in the fourth quarter.

“This will cause a strong price trend to rise over the next year with no signs that it is slowing.”

Europe steps up LNG import demand after local gas prices surge above international LNG price https://fingfx.thomsonreuters.com/gfx/ce/mypmnxybdvr/EuropeGasPricesMar2022.png

Asia’s spot LNG benchmark price assessed by S&P Global (NYSE:) Platts, known as Platts JKM, jumped to a record $84.762 per million British thermal units (mmBtu) on Monday on the back of strong prices in Europe as buyers scour global markets for LNG cargoes to replace Russian gas and LNG.

According to Refinitive Eikon data, it currently trades at $51 per millimeter Btu. This compares with $6 in March 2021.

Consultancy Wood Mackenzie predicts that Asian LNG demand will slow to 2% in 2022 from 8% in 2020.

Global power-generating fuel prices surge to record highs https://fingfx.thomsonreuters.com/gfx/ce/zdpxokgadvx/GlobalPowergenFuels.png

According to Valery Chow (Vice President at WoodMac), “In contrast, European LNG demand is expected to rise by at least 20%” in 2022 due to reduced Russian pipeline flows as well as the need for replenishment of European gas storage levels.”

The European Union announced plans to reduce EU dependence on Russian gas by 2/3 this year and eliminate its dependency on Russian fuel supplies “well before 2030.” Europe is dependent on Russia for approximately 45% of its natural gas supplies. It could request more U.S. LNG.

LNG imports by key region & country https://fingfx.thomsonreuters.com/gfx/ce/gkplgakjmvb/LNGImportsbyRegionMar2022.png

Edmund Siau of consultancy FGE, LNG analyst said that Asian buyers would have to pay higher prices to get cargoes to Europe. This will support Asia’s spot LNG prices.

Wei Xiong from Rystad Energy said Asia’s willingness to pay LNG prices may be less than Europe’s. Therefore, the potential upside for Asia spot gas prices will be smaller than the TTFs or Dutch gas prices in Europe.

According to her, “Demand Growth in India will be limited due to extremely high spot prices and an increased domestic production.”

Demand could be affected by a rise in prices or limited supply in tight markets.

Lu Ming Pan, Rystad Energy analyst, said that this could lead to demand destruction because gas-to coal or oil switching would be more economically efficient.

China, the world’s largest LNG importer China, will drive Asia’s demand growth this year with more regasification terminals. This is to shift away from coal-based power and industrial sectors.

Rystad Energie stated that China’s exports will increase by approximately 45% in the next year, and are forecast to grow by 8.5 Million tonnes annually.

China’s industry leaders are still less optimistic, peg growth at 4,000,000 tonnes or lower for this year. China may also be hesitant to enter the hot spot market, relying heavily on term supplies signed from nations like Qatar and the United States.