After a recent three year low of $12 per MMBTU, Liquefied Natural Gas (LNG) prices in Asia are set to climb back to $16 per MMBTU into the winter as heating demand rises again.Bank of America Merill Lynch (BofAML), the bearish trend in LNG prices were a result of number of factors: First, Exxon's PNG project started off ahead of schedule, ading incremental supplies. Secondly, Asian buyers were well stocked following a warm winter, so additional LNG cargoes from PNG couldn't fina home. Third, European demand has been muted, also ona very warm winter and high stocks.On top of that, Qatar, the world's largest exporter, has kept dropping LNG cargoes into an oversupplied EU market pushing prices to $6.50 per MMPTU.

"Given the current supply situation and barring a hotter than usual summer, prices could remain weak for a few more months. We then would expect spot Asia LNG prices to rise strongly past $16/MMBtu into the winter as demand rises seasonally, but we see a somewhat looser balance compared to last winter. Even them, it is important to keep in mind that the decline in prices follows the overhang from a warm Asian and European winter, and there is little new supply
coming online this year. Moreover, Japanese nukes will still be mostly offline by winter, which means demand and thus prices will likely rise strongly seasonally once again as we enter the high demand period," BofAML said.

Weak spot prices in Asia have prompted Qatar to send more cargoes to Europe since February. With Asian buyers well stocked after the warm winter, Qatar sent a number of LNG shipments to Europe from April onwards, which exacerbated the high inventory situation in both the UK and the Continent. With weak demand in Asia this summer and limited incremental demand from Latin America, the UK could continue to receive several LNG cargoes for the next couple of months, further depressing NBP natural gas prices.

"Heading into next winter, the oversupply situation will start to change, but we see a looser balance. Both Japan and Korea, which combined have over 70% of the regas capacity in Asia and over 50% of capacity globally, were well stocked coming out of the warm winter. There is little need to mop up incremental liquid gas over the summer and put it into storage. Also, Japan may actually start to see some nuclear capacity coming back over the next few months, while 4 of Korea’s 23 nuclear reactors remain down for maintenance and could potentially restart."
Source: Bank of America Merill Lynch (BofAML)