At $19/MMBtu, spot LNG prices have exceeded the oil parity level. Assuming a $90/barrel oil price and that a barrel of oil is equivalent to 5.8 MMBtu, the oil parity price for LNG is around $16.50/MMBtu.
Platts' assessments of January and February Oman/Dubai crude oil prices were in the range of high $85/barrel to low $87/barrel at end-December, when spot deals of $18/MMBtu would have been transacted.
Psychological factors, such as the need to outbid another aggressive buyer, South Korea, may also have prompted Japanese utilities to pay high prices for spot winter LNG cargoes, traders said.
In Asia, term LNG prices are normally linked to the import prices of a basket of Japan crude oil prices, which is comprised mainly of Middle Eastern grades.
Some Asian utilities, especially power companies in Japan affected by unscheduled nuclear plant shutdowns, may have little choice but to pay up for spot LNG shipments if they faced incremental demand during winter but have already maximized their oil-based generation, said a trader.
Psychological factors, such as the need to outbid another aggressive buyer, South Korea, may also have prompted Japanese utilities to pay high prices for spot winter LNG cargoes, traders said.
State-owned Korea Gas, which was unable to stockpile LNG sufficiently during summer since four leaking storage tanks were shut in February, has been forced to rely more heavily on spot purchases to meet seasonal winter demand.
Kogas did not paid more than $16/MMBtu in December 2007 / January 2008 for its winter spot LNG purchases, a trader said. However, if its LNG inventory runs down, it may buckle soon under the pressure to match current spot levels. "Kogas will grab anything below $18/MMBtu," another trader speculated.
Indian demand also seen
Some serious Indian buying emerged in January 2008 as it paid up to $16.50-17/MMBtu, which is in line with with spot deals into north Asia at around $18/MMBtu, after accounting for freight differences, a trader estimated.
Indian state-owned power utility National Thermal Power Corp had been idling 900 MW of generation capacity because of a lack of fuel, according to local newspaper reports.
NTPC issued spot tenders for fuel purchases, but those were met with little interest by suppliers. India's largest LNG importer, Petronet, which operates the Dahej terminal in the western Gujarat state, refused to supply NTPC, saying that Dahej did not have spare capacity to regasify LNG from the spot market because all its excess capacity of 1.5 million mt/year is committed to Ratnagiri Gas and Power, formerly known as the Dabhol project.
NTPC was running short of nearly 7 million cubic meters/day of gas for operating its gas-fired units at 90% capacity, and the power ministry has staked claim to nearly half the gas from the Panna-Mukta-Tapti fields-operated by a consortium of BG, Indian private conglomerate Reliance Industries and state-owned producer ONGC-to meet the shortage.
Indeed on Jan 8 an NTPC official announced they would been using naphtha to combat the gas shortage and keep its gas-based power generation plants running.
"NTPC is using the more-expensive naphtha because of the shortage of
gas," the official said, adding the naphtha would be used until early February.
Besides the power sector, India's fertilizer industry is also facing a shortage of feedstock and is seeking gas as an alternative. In India, naphtha is often used as fuel for power generation and as feedstock for fertilizer production.
Shell is the only private LNG importer in India through its Hazira terminal, also located in Gujarat state.
The major has been relying on spot purchases to supply Hazira and has seen healthy demand since last year after a sluggish start when Hazira first came on stream in 2005. Hazira is a merchant plant and so can go short.
The strength of Indian demand for LNG coincided with the shutdown of one of the domestic offshore gas production units at the Mumbai High fields.
The unit was shut at the beginning of January 2008 to upgrade offshore facilities and link them with a new offshore production unit located in the Bassein area, a spokesman from state-run producer Oil and Natural Gas Corporation said.
The closure cut supply by about a third, to 29 million cubic meters/day.
Indian gas users such as NTPC also face longer-term gas shortages, prompting demand for spot LNG imports and calls for diversion of other domestic gas supplies to the power and fertilizer sectors.
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