Regional heatwaves likely to prompt some spot purchases - Rystad Energy’s Gas and LNG Market Update

Arbitrage opportunities for US-origin liquefied natural gas (LNG) for delivery to Asia in September were briefly open for 4 July and 7 July, although they shut again on 8 July.
Most portfolio players, trading houses and other suppliers with access to US-origin LNG consider shipping costs sunk in this weak shipping environment, meaning arbitrage to Asia is still open at current levels.
With elevated temperatures in demand centers such as Japan, South Korea and other parts of Asia, the Asia-Pacific region will likely have pricing support and remain an attractive market over the Atlantic Basin, although this is subject to sudden upward price movement that could stem from geopolitical risk and sudden policy changes in the European Union or US.

Asia

Spot LNG demand in Asia continues to stem from trading houses and portfolio players, although import volumes to top LNG-importing countries suggest cargoes purchased by these entities are ending up in major importing countries such as Japan and South Korea.
Following spot purchases from Tohoku Electric for September delivery and Japex for October delivery, the market is waiting to see if there will be additional buying interest from Jera and other Asian importers such as Kogas amid an ongoing heatwave.
While additional buying interest could emerge, some utilities are less likely to purchase spot LNG, with Hokkaido Electric, for example, facing planned maintenance at its 569.4-megawatt (MW) Ishikari gas-fired power plant unit 1 from 1 July until 30 October.
Western Japanese power utilities have limited purchasing interest as there is an additional 14% available nuclear capacity year-on-year for July and August, while there is an additional 3% available coal-fired power plant capacity year-on-year.

Consistently higher power prices in Japan are likely to attract some utilities such as Jera to buy additional spot LNG for August and September delivery, with spark spread – the difference between power prices and the cost to generate power from using gas – showing a positive number for both months for Jera’s power plants with higher efficiency such as the Joetsu, Shin-Nagoya or Futtsu units.
Western Japanese utilities, meanwhile, face lower power prices, making it less attractive for them to lock in a profit for August and September delivery – especially with nine out of 13 nuclear power plants in the region running for most of August and September.
Japan has 13% more – or an additional 1.2 gigawatts (GW) – available capacity this August compared to August last year, which will dampen LNG consumption by approximately 200,000 tonnes as baseload, while there is 2% more – or an additional 200 MW –available capacity this September year-on-year.

South Korea has the potential to import more spot LNG in Q3 2025, although this is offset by maintenance scheduled for 17 gas-fired power plants operated by utilities such as Korea Midland Power, Korea Western Power and Korea District Heating Corporation as of 8 July.
This maintenance will affect around 2.48 GW of nameplate capacity, compared to 6.46 GW on 5 July last year.

For competing fuels, South Korea currently has less maintenance scheduled, with only five hydropower units offline (nameplate capacity of 185 MW) and seven pumped storage units (combined capacity of 1.95 GW) compared to 3.25 GW last year, though there are heavier maintenance schedules for coal power plants as 13 units or 7.15 GW-worth of coal-fired power plants will be offline this month, compared to 6.7 GW last year.

Opinions on China’s LNG import potential remain split, with some believing the summer heatwave should spur additional spot purchasing interests from importers, while others are of the view that heavy rainfall in China will dampen the need for LNG imports as the country already has sufficient access via pipelines and long-term LNG contracts.

Europe
Northwest Europe LNG prices for August have fluctuated around $11 per million British thermal units (MMBtu) since 26 June, keeping the discount to the Netherlands-based Title Transfer Facility (TTF) at around 40 to 50 cents per MMBtu – an improvement compared to the level of 15 to 30 cents between 16 and 20 June.
Temperatures in major European cities are expected to be 3 to 4 degrees Celsius above the 22-year average for third week of July.
Norwegian gas flows are up 3.6% to around 319 million cubic meters per day (MMcmd) from a week ago with the return of Ormen Lange from maintenance, although the Troll and Kaarsto facilities remain offline for maintenance.

Elsewhere, Nigeria LNG’s utilization has increased to above 70% consistently for July, returning to the level seen in May.
Cargoes from Nigeria will continue to flow to the Asia-Pacific region as a preferred destination over Europe due to favorable economics (refer to Figure 1).
Angola was offering a cargo onboard the LNG carriers Sonangol Sambizanga for late August or early September delivery, depending on the destination

US
The Henry Hub front-month gas prices for August fell 2% week-on-week to $3.3 per MMBtu, with feedgas levels to some LNG projects such as Corpus Christi falling between 21% and 23% between 7 and 9 July compared to previous levels.
US-origin LNG continues to be exported heading to the Atlantic Basin, although the long route to Asia around the Cape of Good Hope allows sufficient time for suppliers to react should prices in Asia increase faster than in Europe, at which point they could redirect LNG cargoes to the Asia-Pacific region.
Above-average temperatures in mid-July and late July in most regions in the US will likely keep gas-for-power demand elevated.

Elsewhere, supply from LNG Canada will continue to ease the need for Asian importers to attract LNG from other regions as the project can supply LNG significantly quicker than other North American projects on the Gulf Coast.