SINGAPORE — Pure fuel costs in Asia hit a file excessive final week and can doubtless go down from right here, in line with political threat consultancy Eurasia Group.
“We have heard single cargos certainly promote within the excessive $30s, I heard one at $39 [per million British thermal units],” stated Henning Gloystein, director of vitality, local weather and sources at Eurasia. That degree looks as if the “excessive mark” for costs and the height, he stated.
In accordance with S&P World Platts, the benchmark Japan-Korea-Marker (JKM) spot price for liquefied natural gas in February reached a record high of $32.49 MMBtu last week. Pure fuel demand for heating soared after a chilly spell gripped North Asia, the report stated.
The bounce in costs has been “fairly excessive,” however will not final for much longer because the chilly season is ending and demand for heating will fall, Gloystein instructed CNBC’s “Squawk Field Asia” on Monday.
“In some unspecified time in the future, in fact, it’ll get just a little bit hotter,” he stated. “Costs for February and March will in all probability come down as a result of … the winter will finish for certain.”
“That is in all probability the height of the spike,” he added.
The liquefied pure fuel (LNG) cargo ship Cygnus Passage from Russia berths at an LNG terminal operated by China Petrochemical Company (Sinopec Group) on January 7, 2021 in Tianjin, China.
VCG | Visible China Group | Getty Pictures
Pure fuel costs in Asia fell to a file low within the second quarter of final yr when the coronavirus disaster unfold, however they have surged more than 1,000% since July.
Gloystein stated the chilly climate and a few provide outages have performed an element in that surge, however one “large neglected issue” is the huge variety of households in China that switched from coal to pure fuel final yr.
Greater than 10 million households in China have been estimated to have moved from coal to pure fuel for heating their houses, he stated. The vast majority of these transitions occurred within the final quarter of 2020, simply earlier than winter arrived, he stated.
“Then it did get actually chilly, and all of a sudden they needed to serve all this new demand which, by some estimates, will probably be the equal of shifting all of Australia’s households to a different gasoline inside a single yr,” Gloystein stated.
Utilities and vitality firms didn’t have sufficient storage to arrange for such a giant enhance in demand, he added. Because of this, demand outstripped provide and drove costs to a file excessive.
Gloystein stated firms normally construct up storage throughout the summer season and use it up within the winter, topping up as wanted. This time, nevertheless, China all of a sudden needed to buy extra fuel for brand spanking new clients at “actually no matter worth, and nobody was ready for that available in the market.”
Nonetheless, the pattern of switching away from coal to fuel will doubtless proceed, he added.
“This gasification program and the transfer to cleaner fuels in China will stay in place, undoubtedly,” he stated.