Asia's LNG Demand Rebound Is Running 4 Million Tonnes Above Forecast and El Nino Could Make It Worse

Asia's LNG Demand Rebound Is Running 4 Million Tonnes Above Forecast and El Nino Could Make It Worse Chinese imports have surged from 36 to 48 mtpa while cargo diversions from Europe to Asia signal a widening arbitrage the market has underpriced. The market is focused on the Hormuz disruption and its impact on European gas supply. ICE Endex TTF futures rose 35 percent in a single session to more than EUR 60 per MWh, with prices around 76 percent higher on the week, as Goldman Sachs estimated the Hormuz pause would reduce near-term global LNG supply by about 19 percent. Around 25 percent of Europe's total gas supply is LNG, according to Stifel analyst Chris Wheaton. The consensus is bullish on gas prices.¹ But three signals suggest the market is underestimating the demand side of the equation, particularly in Asia, where an El Nino pattern threatens to amplify cooling demand into August at the worst possible time for a supply-constrained market. The first is the pace of Asian demand recovery. Goldman Sachs said preliminary May data show Asia LNG imports running about 4 million tonnes per annum above its 225 mtpa forecast, driven by rising demand in China and South Korea as summer consumption and storage rebuilding gather pace. Chinese imports have risen to a four-week average of 48 mtpa from 36 mtpa in March, with further gains expected to around 67 mtpa in the third quarter as inventories rebuild. South Korean imports have climbed to 42 mtpa, above April levels. "Weak Asia demand has bought Europe time," Goldman said, implying that window is closing.² The second is cargo diversion. A shipment of Nigerian LNG was diverted from its original European destination to Asian markets after a sharp surge in Asian gas prices created a lucrative arbitrage opportunity, Trends Africa reported. Go Katayama at Kpler noted the diversion reflects a widening arbitrage window between the Atlantic and Pacific basins. Qasim Afghan at Spark Commodities said front-month arbitrage opportunities have "increased significantly," now favouring Asian buyers across several major routes. Every cargo that goes to Asia is one that does not go to Europe.⁴ The third is the timing. Global gas prices surged in March to their highest since the 2022-23 crisis, with almost 20 percent of global LNG supply disrupted at the Strait of Hormuz. Asian and European benchmarks moved in lockstep. With roughly 20 percent of global LNG production sitting behind the strait, a prolonged disruption could trigger a supply squeeze comparable to the 2022 shock following Russia's invasion of Ukraine, CNBC reported. An El Nino-driven heatwave layered on top of that disruption would push Asian cooling demand to levels that pull cargoes away from European storage refill at precisely the moment Europe needs them most.^5,1 The contrarian signals are present but specific. NYMEX Henry Hub carries a high-confidence bearish score on supply, reflecting ample US domestic gas production. ICE Endex TTF and JKM spot both flash bearish on supply as well. The market is not ignoring bearish factors — it is weighing them against the bullish Hormuz disruption and concluding the disruption wins. But if Asian demand rebounds faster than expected while Hormuz stays closed, the bearish supply signals from US production cannot offset demand growth in a market where the marginal cargo is being fought over by European and Asian buyers simultaneously. The Asian JKM benchmark had slumped to a 17-month low below $16 per MMBtu earlier in the cycle, as both Asia and Europe emerged from winter largely unscathed, confounding forecasts of extreme gas scarcity. That complacency is exactly what makes the demand rebound dangerous — the market had priced in weak Asian demand as a structural feature, not a cyclical trough.³ Asian buyers are already turning to West Africa, America, Brazil, Guyana and Norway to plug shortfalls from the Gulf, the Economist reported. On March 2, Brazilian barrels for May delivery to China were offered at a premium that reflected the desperation of the rerouting effort.⁶ What would confirm the contrarian view — that LNG prices surge further on Asian demand — is Chinese imports sustaining above 60 mtpa through June while JKM front-month breaks above its March highs. What would falsify it is a rapid Hormuz reopening that adds 19 percent of global LNG back to the market before the El Nino heat peak hits in August.^2,1