SINGAPORE – Natural gas prices in Asia hit a record high last week and are likely to fall from here, according to political risk adviser Eurasia Group.
"We heard that individual loads were actually sold in the high 30s, I heard one at $ 39 (per million British thermal units)," said Henning Gloystein, director of energy, climate and resources for Eurasia. That level appears to be the "high mark" for prices and the climax, he said.
According to S&P Global Platts, the Japan-Korea marker (JKM) reference price for liquefied natural gas hit a record high of $ 32.49 MMBtu in February last week. Demand for natural gas for heating increased after a cold spell in Northern Asia, the report said.
The price jump was "pretty extreme" but won't last long as the cold season ends and demand for heating will fall, Gloystein told CNBC's "Squawk Box Asia" on Monday.
"At some point it will of course get a little warmer," he said. "February and March prices will likely go down because … winter is sure to end."
"This is probably the high point of the peak," he added.
The cargo ship Cygnus Passage from Russia with liquefied natural gas (LNG) will dock in Tianjin, China on January 7, 2021 at an LNG terminal operated by the China Petrochemical Corporation (Sinopec Group).
VCG | Visual China Group | Getty Images
Natural gas prices in Asia fell to a record low in the second quarter of last year as the coronavirus crisis spread. However, since July they have increased by more than 1,000%.
Gloystein said cold weather and some utility outages had contributed to this surge, but a "major overlooked factor" was the large number of households in China that switched from coal to natural gas last year.
It is estimated that more than 10 million households in China have switched from coal to natural gas to heat their homes. Most of these transitions happened in the final quarter of 2020, just before winter came, he said.
This gasification program and the move to cleaner fuels in China will no doubt continue.
"Then it got really cold and suddenly they had to meet all of this new demand, which some estimates put all Australian households in a different fuel in a single year," said Gloystein.
Utilities and energy companies didn't have enough storage to prepare for such a sharp surge in demand, he added. As a result, demand exceeded supply and brought prices to record highs.
According to Gloystein, companies typically build storage in the summer and use it in the winter to replenish as needed. This time, however, China suddenly had to buy more gas for new customers at "literally any price and nobody in the market was prepared for it".
Still, the trend to switch from coal to gas is likely to continue, he added.
"This gasification program and the move to cleaner fuels in China will no doubt continue," he said.