Kiran Stacey More views on Japan’s effect on gas prices

My last post on Japanese LNG demand and its effect on prices generated some debate from readers, so here are a few more views from a report in Petroleum Economist.

As expected, the report states that Japan is not yet purchasing on the spot market, but is using existing long-term contracts. If suppliers are being generous, as Shell has promised to be, they shouldn’t be having to pay much more than normal for their supplies.

But the question remains whether the extra Japanese demand will squeeze the market in the longer term, and the expectation from traders is that it will, but not as much as in 2007, when a smaller Japanese earthquake sent spot prices up to $20/m Btu.

One trader predicted a ceiling of $15/m Btu, while another predicted it would hit $12-13.

The main issue is that there is a lot more gas out there than in 2007. As one trader said: “Some sellers have excess volumes that they are keen to find a home for.”

Whatever happens, it will be worth watching the UK for the first signs of a squeeze. LNG accounts for nearly a third of UK winter demand, and on Monday, contracts for next year rose 10 per cent.