- Interbasin spreads helped shift trade flows
- January sees Asia buying appetite pick up
LNG transits via the Panama Canal plunged 30% in December as Pacific-bound cargoes diverted to the Atlantic to feed strong demand and capture better netbacks in Europe, data provided Jan. 12 to S&P Global Platts by the canal operator showed.
Vessel surge in Panama Canal
The shift in trade flows reversed the consistently upward trend in recent years of LNG transits via the shortest passageway from the Gulf Coast to the East Asia import market, amid sharp growth in US exports.
So far in January, the dynamics in end-user markets have been following a similar theme from a supply and demand standpoint. Most recently, however, cargoes have begun to look east again as slots for February fill up in Europe.
“This time last year, the world’s global economic recovery combined with a record cold winter in Asia, led to historic demand for LNG and a sudden surge in vessels arriving at the Panama Canal in hopes of transiting on the way to Asia,” the Panama Canal Authority said in a statement responding to questions. “Now, a year later, low temperatures and energy shortages in Europe are driving demand for LNG flows in the opposite direction, with US exports rerouting to Europe.”
Some tankers made U-turns after already passing southbound through the canal toward Asia, while others changed direction before passing through.
Negative Interbasin spread
The canal operator said it wants to look beyond the next peak by speaking with customers and exploring more proactive and dynamic solutions for the long run. There were 35 LNG tanker transits via the canal in December, down from 50 during the same month a year earlier, according to the Panama Canal Authority.
All but one of the latest transits passed through with a reservation or obtained one at auction. Booked vessels transit promptly, while unreserved ones wait in lines that last fall grew to as long as three weeks.
For the fourth quarter, LNG transits were down 17%, to 114, versus 138 during the same period in 2020, the data showed.
In December, the focus for US FOB cargoes turned to Europe, as end-user prices surged to record highs. During most of the second half of the month, the spread between the Platts JKM, the benchmark for spot-traded LNG delivered to Northeast Asia, and the Dutch TTF European gas hub was negative, signaling better economics for delivering US cargoes to Europe. The spread is often used as a sign of arbitrage potential between the Atlantic and Pacific basins. The interbasin spread has remained negative so far in January.
Plunging shipping rates
Shipping rates, meanwhile, plunged. The Atlantic day rate fell about 75% from its high in December to $65,000/day at the end of the month, while the Pacific day rate dropped about 70% from its high during the month to $90,000/day Dec. 31. Rates have fallen further during the first 12 days of January.
“While LNG transits at the canal remained below forecasts and last year’s numbers between October and December 2021, allowing our teams to accommodate customers and minimize congestion, this latest situation reinforces the segment’s volatility and how challenging it is to schedule these transits while serving all other segments,” the canal operator said.
Platts assessed the Gulf Coast Marker for February at $22.50/MMBtu on Jan. 12, down $2.25/MMBtu day on day, as US FOB cargo values tracked European prices and better shipping economics, though the netback to Asia was getting close to being the best. US FOB cargo values were still up almost threefold from the same point a year earlier.
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