LNG at risk of price spike this winter: Vitol executive

Oil and liquefied natural gas (LNG) prices could climb higher this winter as low inventories threaten supply disruption or demand shocks for the market, an official of Vitol, the world's top independent oil trader, said on Wednesday.

Consumption of natural gas, coal and oil has surged as the global economy re-opens from Covid-19 curbs, leading to price spikes and supply crunches that could threaten the recovery.

"Most people think about cold winters, and it is true that the last winter in the northern hemisphere reduced (LNG) inventories quite dramatically and there's been a big and late replenishment going on with Russians," said Vitol's Asia head, Mike Muller.

Climate change had led to lower rainfall in key catchment areas for hydroelectric dams, spurring greater demand for fossil fuels, he added.

"LNG prices are at levels nobody would have predicted."

LNG spot prices in Asia have more than doubled this year as strong global demand and the supply crunch in Europe boosted prices.

Asked if a prolonged cold winter in China or the northern hemisphere could drive another price spike upward, Mueller said, "We can't rule it out."

Oil prices remain a laggard in energy markets even as demand has recovered to pre-pandemic levels of above 100 million barrels per day (bpd), despite the absence of demand for 2 million bpd of jet fuel for long-distance flights, Muller said.

However, markets' capacity to cope with supply disruptions or demand shocks is limited as stocks are low, while new investment, especially in deepwater projects, has been lacking, he said.

"We've seen a very marked depletion in Chinese onshore inventories, which tells you that globally now we have very low stocks," Muller said.

"It is quite plausible the market will keep going higher."

Muller said there was a surge of interest in trading of carbon offsets, both for compliance purposes and on a voluntary basis.

"A lot of companies, retail included, are redeploying talents to explore how we can make bundled offerings, and help our customers address their desire to be seen as on their way to carbon zero, net zero."

More producers and refiners seek ways to offset carbon emissions of crude oil exports to meet future global demand for low-carbon raw materials, though such trade will require time to develop amid uncertainty over who pays decarbonisation costs.