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🇸🇬 Singapore /Energy & Infrastructure

Scorching Asian summer, El Nino risk to drive up gas prices

From The Straits Times · () English

Translated from English, summarized and contextualized by DistantNews.

At a glance

News Named sources Context piece
  • Asia's summer heat forecasts and potential El Nino conditions could increase demand for liquefied natural gas (LNG), straining power grids.
  • Traders are watching China's LNG demand rebound, which could intensify global competition as Europe needs to replenish winter inventories.
  • The Strait of Hormuz closure has already impacted supply, and analysts warn LNG prices could rise significantly if it remains largely shut.

Asia's summer is shaping up to be a scorcher, with forecasts pointing to higher-than-normal temperatures across the region. This anticipated heatwave, potentially amplified by an emerging El Nino weather pattern, is poised to boost air-conditioning use and strain power grids. The key concern for the global gas market is how this will affect demand in China, the world's largest liquefied natural gas buyer.

While the conflict in the Middle East has choked off a significant portion of global LNG supply, extreme price spikes have so far been avoided. This is largely attributed to weaker Chinese imports in March and April. However, signs of a rebound in China's purchases are now raising the specter of fiercer global competition. This comes at a critical time when Europe needs to replenish its energy inventories ahead of winter.

The full impact of the Strait of Hormuz closure has not yet been felt because we have been in the soft shoulder season for demand.

— Saul KavonicAn energy analyst at MST Marquee commenting on the current state of the LNG market.

Analysts warn that the full impact of the Strait of Hormuz closure has yet to be felt, as the market was in a low-demand period. "LNG prices could rise a further 50 per cent through August if the Strait remains largely closed," said Saul Kavonic, an energy analyst at MST Marquee. LNG flows have already begun shifting towards Asia, where buyers are willing to pay higher prices, a reversal from the period when Europe absorbed vast amounts of global supply to offset the loss of Russian pipeline gas. Deliveries to Europe are down more than 10 percent from a year ago.

The El Nino phenomenon, which warms sea surface temperatures in the equatorial Pacific, is expected to emerge between June and August. While meteorologists anticipate it could bring hotter weather, the intensity remains uncertain. El Nino typically suppresses rainfall in parts of Southeast Asia and India, while bringing wetter conditions to southern China. However, it can also increase the risk of severe drought and heat in northern China. Current forecasts suggest East Asia will experience summer temperatures around 0.5 to 1.5 degrees Celsius above normal.

LNG prices could rise a further 50 per cent through August if the Strait remains largely closed.

— Saul KavonicAn energy analyst at MST Marquee warning about potential price increases.
DistantNews Editorial

Originally published by The Straits Times in English. Translated, summarized, and contextualized by our editorial team with added local perspective. Read our editorial standards.

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