Robust Chinese Demand Ensures Asian LNG Rally Has Legs

While spot LNG prices for November are trading higher at $8.40 per mmBtu, they are still far short of the $20 per mmBtu mark reached in February 2014 when supply was tight.

Since then, 74 million tonnes per year of new production has poured out of plants in Australia and the United States, pushing down prices and bridging gaps in supply between regions, with another 89 million tonnes due by 2020.

Reuters trade data shows that there is increasing spare capacity in LNG markets, meaning that the general outlook for the market remains one of oversupply and relatively low prices.

"A lot of LNG is coming ... There's no doubt that will create market softening over the next two years," Walker said.

The first exports from Australia's Wheatstone, Cove Point in the United States and Russia's Yamal facility in the Arctic are expected in the fourth quarter of 2017.

However, Chevron's Wheatstone project, which had been due to start producing LNG this month, is running behind schedule, a bullish factor for prices.

That, coupled with higher output from existing plants, will add 8.7 million tonnes more LNG supply this winter compared with a year ago, Anne-Kat Brevik, head LNG analyst at Thomson Reuters said.

Forecasters expect winter temperatures for northeast Asia, including Japan and South Korea, to be milder than average, reducing the likelihood of a surge in winter demand from those buyers.

EUROPEAN DEMAND

However, outside Asia low hydro levels across Spain, Italy, Portugal and Brazil should keep Mediterranean and Atlantic demand for LNG firm during winter.

European LNG supply holders are also holding onto production amid concerns about potential nuclear outages in France, low European storage inventories and curbs on Dutch output causing gas shortages.

"They are worried about getting caught short if there's a repeat of last winter's nuclear power supply crisis in France," a trader said.

French nuclear regulator ASN ordered Electricite de France on Thursday to shut four nuclear units, sending power prices spiking.

(Aditional reporting by Jane Chung in Seoul; Editing by Susan Fenton)