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NWE LNG curve at premium to JKM for much of H1 2023 as Asian demand falls

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NWE LNG curve at premium to JKM for much of H1 2023 as Asian demand falls

Highlights

Lower demand amid mild Asian winter weighs on prices

NWE at premium to JKM from February through June

  • Author
  • Hamza Fareed MalikSammy Rolls
  • Editor
  • Daniel Lalor
  • Commodity
  • LNG Natural Gas

The Northwest European LNG forward curve has moved to a premium to the JKM -- the benchmark price for spot LNG in Northeast Asia -- for much of the first half of 2023 after Asia experienced a drop in prices on lower demand and a mild winter.

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Continuing high inventory levels as well as warmer temperatures in major buying countries hit winter heating demand. COVID lockdowns in China have also affected market sentiment.

Meanwhile, colder temperatures in Europe and the Russia-Ukraine war led to an uptick in European LNG prices.

"I think fundamentally the EU market is getting tighter due to less LNG availability, cold weather plus the geopolitical risk around Russia/Ukraine," a source said.

The Platts DES Northwest Europe LNG daily forward curve for February was assessed at $32.729/MMBtu Nov. 23, with the JKM at $31.739/MMBtu. The premium continued until June 2023, with Asia at a premium again from July.

"Europeans are likely keeping winter heating on till April. Even if it is a mild winter for Europe ... they will need to restock the depleted gas storages," a source said regarding NWE March LNG being at a premium to the JKM.

January is the only month in the first half of 2023 that Northwest Europe is at a discount to JKM.

The Platts DES Northwest Europe LNG daily forward curve is assessed based on market intelligence received during the day, the intermonth structure of the JKM market on the day, and the relationship between NWE and JKM.

"Even if winter [weather] becomes extremely harsh, we won't have to buy spot LNG until March. For April 2023 onwards, there are a lot of uncertainties," a source in Asia said.

"Japanese and Korean storage levels are high. [There is] no buying interest," another source said.