SINGAPORE: Asian spot liquefied natural gas (LNG) prices fell to a four-month low this week on the back of high inventories and weak demand in both Asia and Europe, despite a cold snap causing below-freezing temperatures across most of China.
The average LNG price for January delivery into Northeast Asia fell 18% to $12.70 per million British thermal units (mmBtu) from $15.50 last week, industry sources estimated.
The average LNG price for February delivery was estimated at $11.90/mmBtu.
“Weak fundamentals in Europe continue to impact JKM prices in my view,” said Siamak Adibi, principal consultant at consultancy FGE, referring to the LNG benchmark price assessment for spot physical cargoes in Asia.
“Barring any unplanned outages for LNG or pipelines, the combination of high storage levels and increased wind power generation in Europe will exert downward pressure on (Dutch gas hub) TTF prices, Northwest Europe LNG, and consequently JKM.”
Asia-Europe LNG spread at widest level in almost a year
However, with cold weather and low temperatures appearing in North Asia, pockets of demand are creeping in for February cargoes, said Toby Copson, head of energy APAC at commodities broker Marex.
A cold snap that began at the start of this week extended its grip over China on Friday, with temperatures plummeting to below freezing across most of the country, causing authorities to limit traffic flows on highways in several provinces after vehicles collided on icy patches.
While milder weather across Europe has consistently kept prices on a negative trajectory, added Copson, “we’re seeing more on-water volumes, indicating a potential contango market (in) the first half of 2024”.
A contango market structure means that front-month prices are below that of later-delivery contracts, which gives traders an incentive to buy and store fuel to sell at higher prices when supplies shrink.
In Europe, S&P Global Commodity Insights assessed its daily northwest Europe LNG Marker (NWM) price benchmark for cargoes delivered in January on an ex-ship (DES) basis at $10.367/mmBtu on Dec. 14, a $0.875/mmBtu discount to the January gas price at the Dutch TTF hub.
Commodity pricing agency Argus assessed its daily northwest Europe LNG price for cargoes delivered in January on an ex-ship (DES) basis at $10.575/mmBtu on Dec. 14, a $0.67/mmBtu discount to the January gas price at the TTF hub.
Dutch and British wholesale gas prices fell on Friday morning as forecasts for above-normal temperatures and strong renewable power output curbed demand.
“Europe’s underground gas storage is still nearly 90% full, an unusual situation for this time of the year,” said FGE’s Adibi, adding that pipeline supplies, especially from Norway, remain robust and are operating near capacity.
“Norway has still a potential to send an additional 400-500 million standard cubic feet per day of gas supply to the market when needed. North African supply from Algeria is also steady.”
Additionally, ten LNG cargoes were rerouted from ports in the United Kingdom to Turkey, the United Arab Emirates and Egypt last week due to weaker National Balancing Point gas prices, according to a Tellurian commentary.
On LNG freight, both Atlantic and Pacific spot rates fell again this week, said Spark Commodities analyst Qasim Afghan. Atlantic rates declined 6% week-on-week to $133,750 a day on Friday, while Pacific rates fell 12% to $103,500 a day.