Asia LNG physical MOC activity hits record high for Jan JKM on surge in winter cargo trading

The Asia LNG physical Market on Close assessment process for the pricing period of January JKM -- Nov. 16-Dec. 15 -- saw substantial activity as trading houses and portfolio players sought to trade winter-delivery cargoes, according to S&P Global Commodity Insights data and market feedback.

The total number of bids, offers and trades reported during the physical MOC for the January JKM pricing period reached an all-time high of 367, surpassing the previous record of 335 set during the 2024 January JKM pricing period.

The LNG MOC typically sees a notable increase in activity during winter as traders actively manage their portfolios. Demand requirements during winter tend to fluctuate depending on weather conditions, prompting heightened trading activity.

Additionally, traders often speculate on price movements during winter, anticipating potential spikes in demand driven by colder weather. This speculation can further contribute to increased trading volumes as traders position themselves in the market.

Eight entities -- BP, Engie, Glencore, PetroChina, Shell, Total Energies, Trafigura and Vitol -- reported 16 trades for end-December and January shipments to be delivered into the Japan-Korea-Taiwan-China (JKTC) region, equivalent to approximately 1.04 million mt of LNG cargoes.

Other market participants involved in the physical Platts MOC included ADNOC Trading, BP, DGI, ENN, Freepoint Commodities, Glencore, Hartree, Jera GM, Marubeni, Mercuria, SEFE and Uniper.

In addition to JKTC deliveries, ADNOC Trading and BP reported a total of 17 bids for first-half January-delivery cargoes to be delivered to Thailand.

Of all bids, offers and trades, 59.13% were priced against the JKM index. A market source indicated that pricing against the JKM index is more advantageous than using a flat price as it allows traders to mitigate exposure to flat price risks.

When traders are exposed to flat prices, they face the risk that market prices may change unpredictably, which can lead to potential losses if the market moves against their positions. In contrast, pricing against the JKM index provides a more stable reference point as it often reflects broader market trends rather than the fluctuations of a single price point.

The average cash differential for the 155 bids, offers, and trades linked to the JKM balance-month next-day contract was reported at parity to the balance-month contract, compared to the deeper discounted cash differential observed during the December JKM pricing period at minus 12 cents/MMBtu.

Market fundamentals remain weak

End-users across Northeast Asia remained on the sidelines as mild temperatures and cheaper alternative fuels kept inventories healthy, according to market participants. Several sources added that most LNG cargo purchases were executed by portfolio players and trading houses.

Market participants also continued to monitor weather conditions as a prolonged cold snap could quickly impact supply-demand fundamentals in Asia.

Meanwhile, Asian spot LNG prices were supported by market concerns over the global LNG balance amid geopolitical and supply-side risks.

The Platts JKM, the benchmark price reflecting LNG delivered to Northeast Asia, was assessed at $14.877/MMBtu for the pricing period of January JKM, up 9.56% from the December JKM pricing period.

The geopolitical risk premium associated with natural gas, LNG, and crude oil markets persisted as Ukraine launched US-manufactured long-range missiles into Russian territory for the first time Nov. 19.

On the supply side, production from the Karsto gas field was reduced due to several unplanned maintenances over the gas days of Nov. 21-23, according to a market transparency update from the offshore pipeline operator Gassco.

Meanwhile, the East-West arbitrage remained closed with a majority of US-sourced cargoes pointed toward Europe. The Platts-assessed East-West arbitrage (via the Cape of Good Hope) was marked at minus 71 cents/MMBtu Dec. 17, indicating that traders would achieve greater margins sending US-sourced cargoes to Europe rather than Asia.

However, some traders could still redirect cargoes to the East based on market participants' positions and shipping cost perceptions.

"Some did the cargo diversion from Europe to Asia to consume shipping," a market source said.

Derivatives MOC sees reduced activity

The derivatives Platts MOC saw a total of 1,519 bids, offers, and trades for the January JKM pricing period, down by 19.4% from the December JKM pricing period.

The decline in traded volumes observed in the futures market could be attributed to traders having difficulty reaching an agreement on price levels during the January JKM pricing period, according to one market source.

"The January JKM daily settlement varied quite a lot. I suppose it was difficult for traders to reach a consensus on the tradable level," a market source said.

A second source said the upcoming holiday season would further contribute to reduced trading volumes for the current period.

"For the paper side, it is not good timing to trade right now as hedge funds are trying to close positions before the holidays, which is weakening the market. Similarly, traders would also try to reduce their positions," the source said.

A total of 89 trades for the January, February, and balance-month next-day JKM derivatives of 250,000 MMBtu each were reported by 12 entities, namely ADNOC Trading, BP, Dare, DGI, Glencore, Gunvor, Marubeni, PetroChina, Shell, Trafigura, Unipec, and Vitol.

The broader futures market also recorded reduced activity, with LNG futures traded volumes cleared on financial exchanges over Nov. 16-Dec. 15 totaling 64,999 lots, down by 35.3% from Oct. 16-Nov. 15, according to exchange data.

This is equivalent to approximately 12.5 million mt, or 197 LNG cargoes of 3.4 TBtu each.