- Inter-basin spreads returned to positive territory, signalling better economics for delivering LNG to Asia, as European prices came off faster amid mild weather forecast through January.
- Receive daily email alerts, subscriber notes & personalize your experience.
- The change in spreads characterized the volatility in the LNG markets in 2021.
- The current value is the lowest since Nov. 1.
Inter-basin spreads have recovered to positive territory, indicating stronger economics for shipping LNG to Asia, while European prices have fallen quicker than expected due to the mild weather projected for January as reported by S&P Global Platts.
Market dynamics
According to statistics from S&P Global Platts’ vessel-tracking software tool cFlow, the market dynamics altered fast, with most cargoes still flowing to Europe in the Atlantic Basin on Dec. 31.
Sources say that deals made based on the spread flip will not change the direction of trade flows for several weeks, assuming the trend continues. The volatility in the LNG markets in 2021 was characterised by changes in spreads.
The differential between the Platts JKM, a benchmark for spot-traded LNG transported to Northeast Asia, and the Dutch TTF European gas hub is frequently used as a sign of possible arbitrage between the Atlantic and Pacific basins.
Negative circumstances
JKM/TTF March futures ended the day in the black for the first time since December 13, trading at 45 cents/MMBtu before the holiday-shortened London session ended on December 31.
According to the most recent weather forecasts, much of Europe will see warmer-than-normal temperatures in January, following pleasant weather in the second part of December. This might exacerbate negative circumstances in European gas markets, which have fallen substantially after setting a new high on Dec. 21.
Japanese buyers showed some latent buying desire, according to market sources in Asia, but most did not commit, preferring to reevaluate demand and inventory levels after New Year’s Day.
Shipping rates
When combined with the huge drops in shipping rates over the last month, US Gulf Coast FOB cargoes were closer to a toss-up in terms of netback. In both directions, the maximum waiting days for unreserved LNG tankers passing the Panama Canal were in the low single digits, however, they have recently risen significantly.
The US FOB Gulf Coast marker for February was evaluated by Platts at $21/MMBtu on December 31, down $5/MMBtu from the previous day and about $34/MMBtu from a record high established on December 21. The present price is at its lowest level since November 1.
In February, the disparity between the US Gulf Coast and Northwest Europe was $1.613/MMBtu. When the Platts-estimated USGC-NWE freight rate of around $1.57/MMBtu, as well as loading port lifting and destination terminal regasification expenses, the arbitrage was essentially closed.
Did you subscribe to our newsletter?
It’s free! Click here to subscribe!
Source: S&P Global Platts
