European LNG’s premium to Asia spot price widens amid bearish Pacific sentiment
Northwest Europe-delivered LNG’s premium to the Asia spot price is widening again as Chinese sell tenders issued at a time of weaker-than-normal winter demand have exacerbated bearish cargo sentiment in the Pacific.
The market dynamics could change after the Chinese New Year begins Feb. 1, traders said. Also, colder weather or significant supply disruptions could change the dynamics.
In the meantime, the falloff in LNG spot prices in Asia was happening faster and deeper than in the Atlantic, where limited European slot availability for prompt cargoes was impacting the market.
“It’s difficult to understand what is right or not,” said a Europe-based trader. “I feel fundamentals will not change before Chinese New Year.”
S&P Global Platts assessed DES Northwest Europe for March at $22.438/MMBtu on Jan. 20. That represented a premium of $3.493/MMBtu to the Platts JKM, the benchmark price for spot-traded LNG delivered to Northeast Asia. NWE’s premium to JKM was at its widest in almost a month, since it hit a premium of $11.822/MMBtu on Dec. 22.
In a sign of the volatility in the global LNG market, less than a week ago, on Jan. 14, JKM was assessed a premium to NWE.
It is unusual for European LNG prices to surpass spot LNG prices in Asia, which traditionally relies on LNG imports much more than Europe. As a bloc, Asia is the biggest LNG import market in the world. That is especially true during the peak winter period, when demand from Japan, South Korea, China and Taiwan is generally at its highest, supporting the typical Asian premium.
Demand this winter, however, has been less robust than usual. Adding to those dynamics: two sell tenders by Chinese market participants in recent days – one from trader Unipec for up to 45 cargoes from February to October and the other from CNOOC for multiple May 2022 to November 2022 cargoes.
Across the Atlantic, Platts assessed the US FOB Gulf Coast Marker for March at $20.95/MMBtu on Jan. 20. That was a $2.005/MMBtu premium to the JKM, reflecting strong netbacks to Europe with the arbitrage to Asia shut.
It is likewise unusual for GCM to be at a premium to JKM. When the flip occurred on Jan. 13, that was the first time since Dec. 22, one day after GCM reached a record high.
Panama Canal congestion remains modest amid the stronger cargo activity in the Atlantic, with the maximum wait on Jan. 20 for unreserved LNG tankers transiting the passageway at four days northbound toward the Gulf of Mexico and four days southbound toward the Pacific, according to the Panama Canal Authority. The canal is the shortest passageway for LNG tankers loading on the US Gulf Coast headed to East Asia.