Asian spot LNG prices fall below Northwest Europe as market fundamentals flip
Asian spot LNG prices have dropped below those in Northwest Europe in a rare occurrence as European gas supplies have tightened further heading into peak winter, while Asian utilities remain on the sidelines with strong inventory levels and stable demand.
It is unusual for European LNG prices to surpass spot LNG prices in Asia, which relies on LNG imports much more than Europe, and especially in peak winter when demand from Japan, South Korea, China and Taiwan is at its highest, supporting the typical Asian premium.
The S&P Global Platts LNG price for Northwest Europe for January delivery hit a new record of $41.946/MMBtu on Dec. 14, and the Platts JKM benchmark for spot LNG delivered to northeast Asia was assessed at $39.021/MMBtu at the close of Asian trading hours Dec. 14. JKM was also lower than gas prices on the Dutch TTF — a benchmark for European gas hub prices.
“JKM is at a discount to TTF already, there’s a 15-day difference in rollover but not significant. Tensions are seen in Europe, not Asia, no support for Far East. [I] don’t think Nord Stream 2 will be able to start up in H1 2022,” a Beijing-based source said.
European gas and LNG prices have been supported by growing uncertainty over the start-up of the Nord Stream 2 gas pipeline that is meant to boost Russian piped gas exports to Europe, but the critical project has been stuck in regulatory approvals despite having finished construction. Once operational, it is expected to reduce Europe’s LNG imports.
During Asian trading hours Dec. 14, Singapore-based traders were already expecting JKM to drop below TTF after several days of rallying in European gas prices. However, traders were uncertain about whether the Europe-Asia LNG price spread would be wide enough to create reverse flows from Pacific to Atlantic.
Still, spot volumes exported from the US are likely to be pulled into Europe more easily with stronger European LNG prices.
Slow demand in Asia, high inventories
“Everyone in Asia is well supplied, news of supply issues at Bintulu and Gorgon seems to have died out, production seems pretty decent to me,” a Singapore-based trader said.
Asia’s top LNG importers like China and Japan are reporting healthy gas stocks despite cold weather setting in.
Trucked LNG prices in northern China were averaging mid-Yuan 4,000/mt, equivalent to around $12-$13/MMBtu at present, compared with a seasonal high of around $25/MMBtu over a month ago. There have been no issues with pipeline gas imports so far this year as Central Asia volumes are also stable, a Beijing based trader said.
“According to weather forecasts, it’s also tough to see any cold front hitting China before mid-January. We expect the weather to turn colder from February, but it will be during the Chinese New Year and Olympics, so industrial demand will be down,” the person added.
In Japan, LNG stocks held by major power utilities rose 8.7% to 2.37 million mt Dec. 12 from 2.18 million mt the week before, the Ministry of Economy, Trade and Industry said Dec. 15. LNG stocks were well above 1.42 million mt held at the end of December last year, and the four-year average of 1.71 million mt at the end of that month, according to METI data.
However, China’s national oil companies are still cautious about winter supply. Despite higher inventories at terminals and weakening domestic gas prices, market participants have noted that the NOCs are not seen offering cargoes.
“It’s tough for the NOCs to sell outright even if vessels are waiting outside the terminals, they have winter procurement responsibility. Even if there’s a tank top situation, the first option is to float rather than sell since weather is unpredictable,” a major Chinese importer said.
“The volumes that the tanks at the terminals can hold is not much, so if the NOCs were to sell, the inventories might not come up as quickly, the NOCs might have to wait until H1 January to get a clearer picture of the weather before making a decision to sell,” a Chia-based end-user said.