ATLANTIC LNG: Key market indicators Jan 22-26

Milder temperatures returning after spells of cold weather meant LNG prices globally were expected to remain weak in the near term, while traders were watching the situation in the Red Sea.

Platts, part of S&P Global Commodity Insights, assessed the March JKM at $9.206/MMBtu and JKM balance-of-month next-day derivatives at $9.20/MMBtu on Jan. 22. The West India market for March was assessed at $9/MMBtu.

NWE, Med

European LNG prices trended lower last week as mild weather, supported by healthy gas inventories kept a lid on additional LNG demand. Despite supportive factors such as cold spells in countries like France and Germany and tensions in the Red Sea, prices did not see any considerable uptick intra-week.

Platts assessed the DES Northwest Europe Marker for March was assessed at $8.357/MMBtu Jan. 19, up 7.1 cents/MMBtu on the day but $1.063/MMBtu weaker on the week.

In the Mediterranean, the Mediterranean market was assessed at $8.307/MMBtu, up 2.6 cents/MMBtu on the day but down by $1.103/MMBtu week on week. The East Mediterranean Market was assessed at $8.367/MMBtu, up 7.1 cents/MMBtu day on day and down $1.058/MMBtu on the week. That put the Mediterranean at a 5 cents/discount to Northwest Europe and the East Mediterranean at a 1 cents/MMBtu premium to Northwest Europe.

Gas storage levels in the EU fell 0.48% on the day and 4.71% on the week, to be 75.01% full as of Jan. 20, according to Aggregated Gas Storage Inventory data. EU LNG inventories stood at 3.996 million cu m as of Jan. 20, down 89,000 cu m on the week, according to Aggregated LNG Storage Inventory data. Sources suggest that buying interest may remain capped compared to previous years due to the ample stocks and strong import trend into Europe and the Mediterranean. Given current storage levels, trading activity has been limited with traders opportunistically testing the market rather than concretely trading.

Although demand from the residential and commercial sectors rose as a cold snap incentivized buying in parts of Europe, milder temperatures were forecast to return this week. The market expecting the bearish sentiment to continue to pressure the bulls of the market. Additionally, weak industrial and economic activity are expected to weigh on sentiment further. While blips of buying interest were being heard in the milder temperatures began resurfacing, with bids in Italy being shown, the Mediterranean markets still remain comfortably stocked to deal with the remainder of the winter season.

Gulf Coast marker

Platts assessed the FOB Gulf Coast Marker at $7.12/MMBtu Jan. 19, up 5 cents/MMBtu on the day and $1.23/MMBtu lower on the week.

After the harsh spell of arctic temperatures in the US, milder temperatures are forecast to sway the market back to its bearish environment. US and Europe are expected to face bearish headwinds as high inventories and milder temperatures mitigate significant increase in demand. Furthermore, with buying interest being lower than expected in Asia, the global LNG market could continue to succumb to the overarching bearish fundamentals.

US LNG exports stood at 5.34 million mt in January, up 1.68 million mt on the week and at 61% of the exports seen in December, according to S&P Global data. Around 41% of volumes were headed to Europe, 8% to Asia, 3% to North America and 1% to South America, with the rest not nominated.

"The Cape of Good Hope option comes with low risk and predictability in loading and discharging time, benefits that currently the options via both canals do not offer, but this eventually increases the overall transportation costs due to longer travel distance required. At the average speed of 15 knots, the Cape of Good Hope voyage requires a 45% increase in travel days, versus the Panama Canal route and a 5% rise than the Suez Canal option," analysts at S&P Global said.

LNG swaps

With milder temperatures persisting and lower than expected buying interest from both Europe and Asia, the bearish sentiment has held firm down the forward curve.

On the Northwest European forward curve, full-month March was assessed at $8.298/MMBtu, while April 2024 and May 2024 were at $8.218/MMBtu and $8.235/MMBtu, respectively.

Sources expect the heating season to be fully covered with traders eyeing March and April now for any uptick in buying interest. If colder temperatures return in March, similar to last year, the market may see current dynamics flip and buying interest reignite amid cooler forecasts. Open interest for TTF between February and May has shifted into positive territory after predominantly falling in recent weeks.

For now, the market was gaging the impact of events in the Red Sea and voyages taking the longer routes when selling into Asia. Some market participants anticipated that if Qatar had to carry its LNG into Europe via the Cape of Good Hope for an extended period, it could put upward pressure on the prices. While some players were optimistic on the contracted Qatari LNG deliveries, stating that "I believe Qatar will try to meet up their deliver obligation by chartering more ships. Other participants suggested a delay in LNG shipments to Europe could impact trade flows despite the region holding healthy inventories. "I think we will see first the consequences of that crisis in shipping rates and later in gas prices," another source said.