There are early signs that the rise in the spot price for liquefied natural gas (LNG) for delivery to Asia to a three-month high is starting to crimp demand from price-sensitive buyers such as India.

The spot LNG price rose to $10.50 per million British thermal units (mmBtu) in the week ended April 19, the most since January 19, and up 26.5 percent from the low so far in 2024 of $8.30, reached in early March.

The recent increase in the price has been driven more by supply concerns, with the ongoing conflict in the Middle East fuelling concerns that shipments from Qatar, the world’s third-largest LNG exporter, may be disrupted.

So far these fears have yet to be realised, but there have been increased costs for LNG shipments as vessels bound for Europe avoid the Red Sea, where Yemen’s Iran-aligned Houthi group has launched missile strikes against several vessels, although none of these were LNG carriers.

With the spot price once again above $10 per mmBtu, it has reached levels that have in the past resulted in buyers such as India, and even China, the world’s top LNG importer, pulling back on purchases.

This is because at these price levels imported LNG finds it hard to compete with other fuels in domestic markets.India’s LNG imports for April are estimated at 1.90 million metric tons by commodity analysts Kpler, which is down from 2.26 million in March and also below the 1.98 million from April last year.

LSEG data pegs India’s April LNG arrivals at 1.79 million tons, a four-month low and down from 2.27 million in March and 1.88 million in April 2023.

China’s imports of the super-chilled fuel are estimated at 6.14 million tons in April by Kpler, down from 6.64 million in March, but above the 5.31 million in April last year.

China’s LNG imports in the first quarter of 2024 were strong, most likely as a result of the cheaper spot prices that prevailed for much of the buying period, but also because of the recovery of parts of the economy, especially manufacturing.

The official Purchasing Managers’ Index rose to a 13-month high of 51.6 in March, and has now spent the last five months in positive territory above the 50-level that separates expansion from contraction.

The improving economic backdrop in China may serve to bolster demand for LNG, but the stronger price is also likely an obstacle.

Much will depend on the availability of alternatives, and it’s interesting to note that China’s domestic output of natural gas has also been rising strongly, with production in the first quarter rising to 63.19 billion cubic metres, up 5.2 percent from the same period in 2023.

Developed economies in Asia that import LNG tend to be less sensitive to rising prices as the bulk of imports are secured under long-term contracts, and LNG imports are largely stable.