Pure fuel costs in Asia might have peaked after latest highs, Eurasia Group says


SINGAPORE — Pure fuel costs in Asia hit a document excessive final week and can possible go down from right here, in accordance with political danger consultancy Eurasia Group.

“We have heard single cargos certainly promote within the excessive $30s, I heard one at $39 [per million British thermal units],” mentioned Henning Gloystein, director of vitality, local weather and assets at Eurasia. That degree looks like the “excessive mark” for costs and the height, he mentioned.

In line with S&P International 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 mentioned.

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.

“Sooner or later, after all, it’ll get a little bit bit hotter,” he mentioned. “Costs for February and March will in all probability come down as a result of … the winter will finish for positive.”

“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 Photographs

Pure fuel costs in Asia fell to a document low within the second quarter of final 12 months when the coronavirus disaster unfold, however they have surged more than 1,000% since July.

Gloystein mentioned the chilly climate and a few provide outages have performed an element in that surge, however one “massive neglected issue” is the huge variety of households in China that switched from coal to pure fuel final 12 months.

Greater than 10 million households in China had been estimated to have moved from coal to pure fuel for heating their houses, he mentioned. The vast majority of these transitions occurred within the final quarter of 2020, simply earlier than winter arrived, he mentioned.

This gasification program and the transfer to cleaner fuels in China will stay in place, unquestionably.

Henning Gloystein

Eurasia Group

“Then it did get actually chilly, and immediately they needed to serve all this new demand which, by some estimates, will probably be the equal of transferring all of Australia’s households to a different gasoline inside a single 12 months,” Gloystein mentioned.

Utilities and vitality corporations didn’t have sufficient storage to arrange for such a giant enhance in demand, he added. Consequently, demand outstripped provide and drove costs to a document excessive.

Gloystein mentioned corporations normally construct up storage throughout the summer time and use it up within the winter, topping up as wanted. This time, nevertheless, China immediately needed to buy extra fuel for brand new clients at “actually no matter worth, and nobody was ready for that out there.”

Nonetheless, the development of switching away from coal to fuel will possible proceed, he added.

“This gasification program and the transfer to cleaner fuels in China will stay in place, unquestionably,” he mentioned.