JKM-NWE spread reaches 1-year low on weak Asian LNG demand

The JKM-NWE spread fell to 16.3 cents/MMBtu Oct. 1, the lowest level since Oct. 12, 2023, amid weak Asian LNG demand and worries over potential tight constraints in Europe during winter.

While the narrowed JKM-NWE spread was partly due to European LNG prices strengthening during London hours Oct. 1, driven by escalating Middle East tensions, a negative East-West arbitrage window highlighted thin appetite for LNG volumes in Asia.

The Platts-assessed East-West arbitrage (via the Cape of Good Hope) dipped 3.4 cents/MMBtu on the week to minus 67 cents/MMBtu on Oct. 1, S&P Global Commodity Insights data showed, indicating limited opportunities for traders to shift Atlantic supply to the East.

LNG demand from major importer China remains thin because the flat price is still above $13/MMBtu, sources said, adding that bidding prices are at $12-$12.50/MMBtu.

“The price is still above the level [that] would attract Chinese tier-II buyers, so this is crushing the JKM-TTF spread and the JKM physical price,” a Middle East-based trader said.

Market participants also noted a minor decline in domestic gas and trucked LNG prices in China, which is unusual as prices typically rise before the Golden Week holiday amid replenishment activity.

Trucked LNG prices in China decreased to Yuan 4,800-4,900 /mt on average, approximately $13.15-$13.40/MMBtu. This translates to an import cost of $12-$12.50/MMBtu for LNG when factoring in taxes and tolling, a market source said.

Another trader said Chinese demand would also depend on buyers' needs to build inventories regardless of market levels.

South and Southeast Asia

Similarly, Indian demand is not expected to increase significantly as offers remain above $12.5/MMBtu on a flat price basis, sources said.

Additionally, the fall in crude oil prices would impact alternative fuel prices, such as naphtha and propane, capping demand from India, according to market sources.

Platts assessed the West India Marker, the price for LNG cargoes delivered to West India, Kuwait and Dubai, at $12.213/MMBtu Oct. 1, or a 40.3 cents/MMBtu discount to NWE, Commodity Insights data showed.

“The market for India was nearly TTF plus 70 cents/MMBtu not so long ago but started falling toward TTF plus 30-40 cents/MMBtu [shortly after]. So, [the Indian market] being a discount [to TTF now] is a big development,” a Singapore-based trader said. “I anticipate this will compress spread for JKM-WIM.”

Platts assessed the Southeast Asia Marker, the price for LNG cargoes delivered to Southeast Asia, at a 31.6 cents/MMBtu discount to JKM Oct. 1, Commodity Insights data showed. The spread was potentially widening amid thin regional demand, market sources said.

“LNG demand in Southeast Asia typically peaks from March to May and dampens at year-end, unlike Northeast Asia, where demand surges during the winter months,” a regional buyer said.

Healthy inventory levels across the region and high spot prices resulted in several canceled tenders in September. PTT and PetroVietnam Gas both canceled tenders for October cargoes.

European gas prices

European gas prices remained resilientdue to supply-related risks stemming from the Middle East conflict and the early stoppage of gas flows from Russia via Ukraine, sources said.

The region is also experiencing heavy maintenances at the Norwegian Continental Shelf, which, although planned, were adding to bullish sentiment due to the potential for unplanned extensions.

Temperatures have also dropped, especially in Northwest Europe, supporting LNG demand in recent weeks.

Northwest European countries -- Belgium, Northern France, Germany, Netherlands and the UK -- have together imported 2.96 million metric tons of LNG in September, the highest monthly levels seen in the third quarter of 2024, according to Commodity Insights data.

“Even if Asian buyers were buying, [current] Northwest European prices are still too high,” another LNG trader said.

NWE LNG prices stand at $12.516/MMBtu Oct. 1, around 53.4 cents/MMBtu higher than prices seen at the same time last year.

Despite strong gas inventories across Europe and relatively healthy access to pipeline volumes, traders maintain a bullish outlook for global LNG prices. The market continues to monitor demand signals from Asia, expecting fierce competition between Europe and Asia for waterborne cargoes over winter.

Shipping prices remain weak

LNG carrier day rates for the Atlantic and Pacific Basins saw significant year-on-year declines Oct. 1, with Tri-Fuel Diesel Electric carriers dropping by $129,500-$137,000/day and two-stroke ships falling by $160,500-$161,500/day, Commodity Insights data showed, due to ample ship supply and limited demand for carriers, market sources said.

Current sentiment suggests significant spikes in rates are unlikely in the near term due to low expectations for October, as most participants are long on the fleet, and there is little interest in short-term charters. Moreover, market activity is thin as many trading houses are relying on their own carriers.

“Geopolitical tensions, particularly the escalating situation between Israel and Lebanon, may heavily and drastically change rates, but we cannot speculate,” a shipbroker said.

Platts, a part of Commodity Insights, assessed the spread of LNG carrier day rates for the Atlantic and Pacific Basins at $3,000/day for TFDE carriers and $7,000/day for two-stroke ships Oct. 1. This marked a significant narrowing by $10,500/day and $8,000/day, respectively, compared with the previous year.