(The opinions expressed here are those of the author, a columnist for Reuters.)
LAUNCESTON, Australia - The price of spot liquefied natural gas (LNG) in Asia climbed last week to the highest so far this year, but slipping demand in the top-consuming region shows the market is still being driven largely by Europe's Russian gas crisis.
The weekly spot price was assessed at $42.50 per million British thermal units (mmBtu) on July 29, exceeding the previous 2022 high of $40.50, reached on March 4 in the wake of Russia's Feb. 24 invasion of neighbouring Ukraine.
The price is still short of the record high of $48.30 per mmBtu from the week ending Dec. 23, but is also some 160% higher than it was in the same week in July last year, and 1400% above the level from late July 2020.
The surge in prices in Asia isn't because of strong demand from the region, in fact the reverse is the case with imports declining so far this year.
China has been especially soft when it comes to LNG demand, with July's imports forecast at 5.12 million tonnes by commodity analysts Kpler, down 14.1% from the same month in 2021.
For the first seven months of the year Kpler estimates China's LNG imports at 36.53 million tonnes, down 19.6%, or 8.89 million tonnes from the same period in 2021.
China overtook Japan last year as the world's biggest importer of the super-chilled fuel, but is on track to hand back the crown this year.
Japan has also seen declining LNG imports, but not to the extent experienced by China.
Japan's July imports are forecast at 6.72 million tonnes, up from 6.46 million for the same month in 2021, but for the first seven months of the year imports were down 2.2% to 44.5 million tonnes.
South Korea, Asia's third-biggest LNG buyer, is also seeing lower LNG demand, with year-to-date imports down 4.8%, with July arrivals pegged at 3.34 million, a drop of 20% from the same month last year.
India, the region's fourth-biggest LNG importer, brought in 1.8 million tonnes in July, down 5.8% from the same month last year, while imports for the first seven months slid 11.8% to 12.44 million.
EUROPE RISE TRUMPS ASIA LOSS
Overall, Asia's LNG imports for the first seven months are estimated by Kpler at 154.46 million tonnes, down 6.1% from the same period last year.
High prices for both spot and longer-term, oil-linked contracts are likely to shoulder most of the blame for Asia's softer LNG demand.
China in particular has boosted domestic coal output and consumption in order to trim reliance on natural gas, while countries like Japan and South Korea are trying to boost the use of alternatives in power generation, such as nuclear and coal.
But even as Asia's LNG demand moderates, Europe's continues to surge as buyers seek LNG as an alternative to now-uncertain Russian pipeline supplies.
Europe's LNG imports were 71.83 million tonnes in the first seven months of the year, up 56.1% from the same period in 2021, according to Kpler.
In volume terms, Europe's additional 25.81 million tonnes of demand swamps Asia's loss of 10.08 million tonnes, providing a clear picture of why LNG prices remain at extremely elevated levels.
Of course, there is more to the picture, with other regions, such as South America, also experiencing a drop in demand.
Global exports have also risen by just over 10 million tonnes to 234.83 million in the first seven months, as LNG producers try to maximise output and minimise outages.
But the overall picture is still one of an extremely tight market facing considerable risks heading into the northern winter, with Russian pipeline supplies to Europe a major question mark.
So far Russian LNG exports have been largely unaffected by the war in Ukraine, although there has been some shifting among buyers, with China taking more and Europe gradually easing back on cargoes. Russia calls its actions in Ukraine a "special operation".
But Moscow is insisting on changes to payment methods and is also planning to seize full control of Sakhalin Energy, which operates the Sakhalin-2 LNG facility, which in turn supplies about 10% of Japan's LNG imports.
While Russian LNG is likely to continue to flow and find buyers, it's also likely that the current market tightness will continue, perhaps forcing further demand declines in some Asian countries.
(By Clyde Russell; Editing by Christopher Cushing)