ATLANTIC LNG: Key market indicators Dec 27-29

Despite muted trading activity over the holiday period, global LNG prices saw slight support on rising geopolitical tensionsand traders closing off their annual trading books, nudging prices higher.

Platts, part of S&P Global Commodity Insights, assessed the February JKM at $12.365/MMBtu and the JKM Balance Month-Next Day February derivatives at $12.40/MMBtu on Dec. 27. The West India market for February was assessed at $11.863/MMBtu.

NWE, Med

While support came from the wider gas complex, as tensions in the Middle East spark concerns across the market, the bearish sentiment still remains across Northwest Europe and the Mediterranean.

Platts assessed the DES Northwest Europe Marker for February at $10.374/MMBtu Dec. 22, down 3 cents/MMBtu on the day but up 61.1 cents/MMBtu week on week.

In the Mediterranean, the Med market was assessed at $10.444/MMBtu, flat on the day but up 69.1 cents/MMBtu on the week. The East Med market was assessed at $10.459/MMBtu, also flat on the day. This put the Med and East Med at premiums of 7 cents/MMBtu and 8.5 cents/MMBtu, respectively, to the NWE marker.

Although gas storage levels in the EU rose by 0.02% on the day, they have fallen 1.76% since the last update on Dec. 18 to land at 87.08% full as of Dec. 25, according to Aggregated Gas Storage Inventory data. High inventories across Europe, as well as the strong import trend seen in Europe and the Mediterranean, have helped to prevent any significant price hikes in the recent months.

Milder temperatures still persist across Europe, with traders pointing to reduced consumption and ample supply weighing on sentiment. Traders see improving demand signals from the West and East Mediterranean regions with expectations that demand in the Mediterranean will improve in January and February. While mixed sentiment was seen in Europe due to the comfortable supply, some traders said they expect market sentiment to change once the new year has begun and the peak heating season begins.

Gulf Coast marker

Platts assessed the FOB Gulf Coast Marker at $8.64/MMBtu Dec. 22, unchanged on the day but 43 cents/MMBtu higher week on week.

Analysts at S&P Global suggest that seasonal heating demand is rising slowly in the US despite milder temperatures across the country. However, given the forecasts, of continuing mild weather, the analysts said they expect no sharp deviation from the stable heating trend. While no strong uptick in demand is forecast in the coming weeks, this could change quickly should colder temperatures ensue. High inventories and strong production are helping to mitigate any significant increases in prices in the US. "It could be argued the price risk associated with a poor winter heating demand would be larger than a sharp demand spike. The bottom for the price support could fall out if heating demand fails to deliver," the analysts said.

US LNG exports continue to rise in December and have reached 7.49 million mt, up 2.99 million mt since the last update on Dec. 18, according S&P Global data. Around 47% of volumes were headed to Europe, 9.6% to Asia and 1% to South America, with the rest still to be nominated.

US freight rates to Northwest Europe and Japan/Korea continue to hover around multi-month lows, as ample vessel availability in the Atlantic and Pacific, as well as muted demand continue to pull down rates. Although the ongoing constraints at the Panama and Suez canals are pushing sellers to take longer voyages, such as via the Cape of Good Hope, the market has started to adjust to the lengthier times.

LNG swaps

Further down the Northwest European curve the market still sees very little interest throughout the heating season, with now little activity pushing through until March. Market intelligence pointed to a flat intermonth structure between January and March, further exemplifying the current bearish fundamentals.

On the Northwest European forward curve, full-month February was assessed at $10.150/MMBtu, while March 2024 and April 2024 were assessed at $10.188/MMBtu and $10.103/MMBtu, respectively.

Ample supply and generally milder weather have provided little support for the demand balance across the globe. While colder spells lasting several weeks could help to flip the current bearish picture and lead to dramatic price moves, the market still sees the high storage levels and strong imports cushioning LNG markets across Europe throughout January and February. Prices could end the heating season under significantly more downward pressure than last year.

"Demand is lower than expected this winter both in Europe and Northeast Asia partly due to a muted start to Asian winter weather, combined with reports that Chinese NOCs are re-exporting cargoes amid an apparent over-commitment on term volumes," Lucien Mulberg, analyst, and James Taverner, senior director, at S&P Global said.

"Although there is little new LNG supply capacity due online by summer 2024, the sluggish recovery in demand growth -- both in Europe and Asia -- points to a tighter market than in 2023, but not as tight as previously forecast. Winter weather will be an important driver -- a sustained spell of higher heating demand would deplete gas storage levels further by the start of the injection season, tightening the global market."