TTF trades at premium to Asian gas for first time since 2015
Asian gas customers are paying less than their European counterparts for the first time in years as swelling global LNG supplies pressured the region’s main index below Europe’s benchmark hub price this week.
Deliveries of liquified natural gas on the Japan/Korea Marker last settled at USD 4.73/MMbtu (EUR 14.20/MWh), less than half where they stood in October and some of their lowest levels in nearly three years.
By comparison, the relevant May contract on the Dutch TTF gas hub last closed at EUR 14.65/MWh. Though trading at its lowest level this year, European gas is now fetching a slight premium to Asia’s benchmark for the first time since 2015.
Sanira Tennakoon, senior oil and gas consultant for AME Research in Sydney, mostly attributed the plunge in JKM pricing to ongoing global LNG supply growth.
“This is part of the market balance,” he told Montel. “Especially with a number of projects coming online in the US.”
Global LNG supply grew around 9% last year to 319m tonnes (434bcm gas), with around half the growth coming from Australian facilities, oil major Shell said last month. It expects another 35m tonnes of supply to come online this year, around half from the USA.
Continued supply growth this year together with ebbing gas demand in the spring period were pressuring gas prices to levels that would concern US LNG exporters, said Saul Kavonic, Credit Suisse head of oil and gas research in Australia.
“US LNG cash cost economics and supply response could be tested for the first time,” Kavonic said.
Mild weather in Asia and Europe this past winter has helped suppress demand.
Temperatures in the world’s biggest and third biggest LNG importers – Japan and South Korea – averaged well above normal over winter. AccuWeather forecasts show them remaining so until at least next Wednesday.
Yet some supply disruptions may emerge for the region as two cyclones make their way towards LNG production facilities in northwestern and northern Australia.
Cyclones Veronica and Trevor could temporarily support Asian LNG prices, said Tennakoon.
“We have seen production declining from the North West Shelf and Darwin…Production is actually quite tight,” he said, adding the impact would ultimately depend on the length of any outages.
Australian LNG producer Woodside told Montel it was “taking the necessary precautions” to safeguard its people and assets, though it would not elaborate on the supply impact.
Tennakoon expected Asian spot LNG prices to remain around present levels of USD 5/MMbtu for the next three-to-six months.
“As we move into 2020 we expect the price to go slightly up as China and India pick up demand.”
The global market was only likely to return to see demand outpace supply again by 2023-24, according to AME Research.
London-based analysts Energy Aspects said LNG imports at around double last year’s volumes added further downward pressure to gas prices – especially in conjunction with an expected Russian response.
“Russian exports would have to push the TTF down to around 4/MMbtu (EUR 12.30/MWh), given a prevailing Henry Hub summer curve of USD 2.90/MMbtu, to cut off US LNG supplies,” the consultancy said in a gas comment to clients this week.
“While this is not in our base case, it certainly cannot be ignored as a downside price indicator.”