European LNG flips back to discount to Asia spot price as more cargoes head East

For the first time in almost two weeks, the delivered price of LNG into Northwest Europe was assessed at a discount to the Asia spot price Jan. 27.

That came as interbasin spreads beyond March sustained recent strength amid increasing numbers of cargoes heading to the Far East.

Market participants cited short-covering in Asia. There's been a pickup in demand in Japan and interest in Thailand and Taiwan, traders said. Also noted was the potential for buying heat up further in Asia after the Chinese New Year that begins Feb. 1.

"All of the things that have happened lately have helped," an Atlantic-based trader said.

It is unusual for European LNG prices to be at a premium to spot LNG prices in Asia, which traditionally relies on LNG imports much more than Europe. As a bloc, Asia is the biggest LNG import market in the world. That is especially true during the peak winter period, when demand from Japan, South Korea, China and Taiwan is generally at its highest, supporting the typical Asian premium. Amid volatility in global LNG markets due to shifting trade flow dynamics, delivered prices for Northwest Europe and the Asia spot price have flipped back and forth several times over last two months in terms of which was at a premium or discount to the other.

S&P Global Platts assessed DES Northwest Europe for March at $27.989/MMBtu on Jan. 27. That was a discount of 28.3 cents/MMBtu to Platts JKM, the benchmark price for spot-traded LNG delivered to Northeast Asia. Platts assessed JKM for March at $28.272/MMBtu on Jan. 27. The last time NWE was assessed at a discount to JKM was Jan. 14.

JKM April futures were more actively traded than March during European market hours Jan. 27, rising to $29.150/MMBtu before London close. The first half of April is currently the delivery period for US FOB Gulf Coast cargoes.

"I think it makes sense because Asia needs LNG from the Atlantic Basin, so they should price to attract it," said a second Atlantic-based trader.

Japan's Tohoku Electric was said to have issued a limited buy tender for Feb. 20-March 5 that closed Jan. 27. A buy tender from Thailand's PTT for H1 February-April deliveries closed Jan. 26. Two to three cargoes were heard awarded in the tender. A buy tender from Taiwan's CPC for an early-April delivery DES Yung An, closed Jan. 26. Two to three March-April deliveries were heard awarded.

In the JKM derivatives market, the spread between the April JKM and TFU (TTF traded in $/MMBtu) traded in positive territory at 20 cents/MMBtu before London close Jan. 27. Looking further out, the spread for June was last trading at 45 cents/MMBtu before London close on Jan. 27.

Platts assessed the Gulf Coast Marker for March at $26.30/MMBtu on Jan. 27, up 5 cents/MMBtu on the day. Panama Canal congestion heightened further, with the maximum wait on Jan. 27 for unreserved LNG tankers transiting the passageway at 11 days northbound and seven days southbound, according to the Panama Canal Authority.