Analysis - LNG markets eye record prices in race to replenish stocks

LONDON : Liquefied natural gas prices face a quick return to recent record highs as cold weather approaches the Northern Hemisphere and surging power demand and depleted gas storage heightens the global energy crunch, particularly in Europe.

LNG prices lurched from record lows under US$2 per mmBtu to all-time highs of US$56 in the last 18 months, as markets struggle to keep pace with global economies recovering from COVID-19. Benchmark prices are around US$31 currently. Supply-sensitive European gas prices have similarly sky-rocketed, with the benchmark Dutch front-month contract hitting a record high of 150 euros per megawatt hour in October and currently trading around 90 euros.

Learning a hard lesson from last winter, when freezing conditions across Asia and widespread LNG plant outages fuelled competition for cargoes in a tight spot market, Asian buyers have been busy restocking LNG inventories to comfortable levels "At this point, we see Europe barely scraping through and finishing the winter at just about the 5-year minimum level, which is about 20per cent full," said Tamir Druz, managing director at Capra Energy Group, adding that this will require both LNG and European gas prices to remain very high.

"There is a chance of short-term spikes in pricing of European Gas and LNG, in addition to the physical balances, the market has a risk premium from geopolitical issues that could escalate as well as the potential impact of gas and power retailers going out of business," said Pablo Galante Escobar – Vitol's Global Head of LNG and European Gas & Power.

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