ATLANTIC LNG: Key market indicators Jan 15-19

Despite the ongoing geopolitical tensions, with heightening risks in the Red Sea, and slight buying interest providing monetary support to prices, the overarchingly bearish fundamentals continue to weigh on sentiment.

Platts, part of S&P Global Commodity Insights, assessed the February JKM at $10.348/MMBtu and the JKM March derivatives at $10.590/MMBtu Jan. 15. The West India market for February was assessed at $10.10/MMBtu.

NWE, Med

With milder temperatures forecast towards the end of the month, as well as weak economic signals and recessionary fears further depressing demand, the market expects prices to face further downward pressure.

Platts assessed the DES Northwest Europe Marker for February at $9.420/MMBtu Jan. 12, up 34.9 cents/MMBtu on the day but down 86 cents cents/MMBtu on the week.

In the Mediterranean, the Med market was assessed at $9.41/MMBtu, up 34.9 cents/MMBtu on the day but down 91.3 cents/MMBtu on the week. The East Med market was assessed at $9.425/MMBtu, also up 34.9 cents/MMBtu and down 91.3 cents/MMBtu on the week. This put the Med and East Med at premiums of 1 cent/MMBtu and 0.5 cent/MMBtu respectively to the NWE marker.

Gas storage levels in the EU fell by 0.4% on the day, to land at 79.72% full as of Jan. 13, according to Aggregated Gas Storage Inventory data. EU LNG inventories stood at 4.085 million cu m as of Jan. 13, the lowest level seen since the beginning of September, according to Aggregated LNG Storage Inventory data. Despite weaker storage levels, sources still see current stocks and the strong import trend into Europe, coupled with subdued demand, keeping Europe comfortably supplied for the rest of the heating season.

Imports into Europe and the Mediterranean remain healthy, with traders still seeing the European market being well offered and demand remaining weak. Sources suggest that the current supply and demand balance indicates that the market is sufficiently covered to deal with any uptick in demand or a cold snap. If colder weather pushes through to March, the market dynamics may shift, but for now the week is unlikely to show any significant price rises. "There is always seasonality but maybe we won't see such extreme prices anymore," a market source said.

Gulf Coast marker

Platts assessed the FOB Gulf Coast Marker at $8.35/MMBtu Jan. 12, up 33 cents/MMBtu on the day but 84 cents/MMBtu lower week on week.

Colder weather forecasts and expectations of storms across the US could push up prices in the near term. However, these conditions are not expected to persist in the medium term and the market may have to adjust for sudden shifts in weather patterns in the US. Similarly to Europe, the strong storage and supply levels have been keeping large price increases at bay in the short term.

US LNG exports stood at 3.66 million mt in January, already at 41% of the exports seen in December, according to S&P Global data. Around 30% of volumes were headed to Europe, 8% to Asia and 2% to South America, with the rest still to be nominated.

Despite ongoing geopolitical tensions with heightened risk for vessels sailing via the Red Sea, US freight rates to Northwest Europe and Asia have tumbled to multi-month lows. Market participants have a few options, either to sail through the Suez Canal or round the Cape of Good Hope or wait until a next slot opens up at the Panama Canal or pay a hefty auction fee to jump the line for a quicker transit through the canal. The market's preference had been to use the Suez Canal option, which comes with relatively less travel distance and time than the Cape of Good Hope route. However, geopolitical tensions in the Middle East that led to multiple attacks on merchant ships made the LPG and LNG shipping industry reevaluate their available options, after which many dropped the Suez card amid the elevated risk of attacks and an increase in insurance premiums sailing in the Red Sea area.

LNG swaps

Although interest was heard in February in Asia, the market still expects demand to remain relatively depressed in Europe throughout January and February. Given the narrow gap between European and Asian pricing, sources expect plenty of LNG to arrive in Europe between February and April. Prices should still experience further downward pressure in the coming months with strong selling interest capped by poor demand.

On the Northwest European forward curve, full-month February was assessed at $9.705/MMBtu, while March 2024 and April 2024 were at $9.333/MMBtu and $9.229/MMBtu respectively.

"The average JKM price for February and March 2024 is forecast to be $10.70/MMBtu, down $3.90/MMBtu from the previous outlook. Northeast Asia has so far experienced broadly average winter weather conditions (although some areas such as northern China have had colder spells," Lucien Mulberg, analyst, and James Taverner, senior director, at S&P Global said. January weather conditions are forecast to be warmer than historical averages, potentially reducing demand and prices further. Chinese buyers are reported to be securing cargoes as LNG spot prices are at a discount to domestic gas."