Geopolitical risks, weak Asian demand create headwinds on JKM prices

Asian spot LNG prices plunged to their lowest levels in seven months during the week ended March 7 as bearish developments in the West and lackluster demand from Northeast Asia continued to exert downward pressure on prices.

The JKM spot price trended downwards after previously hitting a 14-month high of $17.123/MMBtu on Feb. 10, before falling to a multi-month low at the March 7 Asian close.

Platts, part of S&P Global Energy, assessed the April JKM, the benchmark price for LNG cargoes delivered to Northeast Asia, at $12.302/MMBtu March 7. The Asian LNG benchmark was last lower on July 25, 2024, at $12.143/MMBtu.

The potential for a relief of US energy sanctions on Russia and a resumption of Russian gas flows into Europe emerged following ongoing peace talks conducted by the Trump Administration and Russian President Vladimir Putin Feb. 12.

Market participants continue to eye the European Commission's proposal of a two-year extension to the EU gas storage regulation and the "flexibility" that member states will be allowed on measures to refill storage facilities this summer which would affect competition for cargoes between Asia and Europe.

Fundamentally, the Atlantic basin was stronger relative to the Pacific basin amid stronger gas demand and dwindling storage levels.

Europe's gas storage levels stood at 36.8% as of March 8, according to Aggregated Gas Storage Inventory data.

The Platts-assessed East-West arbitrage has largely remained in negative territory since July 29 last year, indicating that traders would gain greater margins sending a US-sourced cargo into Europe rather than Asia, where demand for LNG is weaker.

Seasonally low demand in Asia

Demand across the Northeast region remained tepid amid continued healthy inventory levels due to mild winter temperatures, resulting in seasonally low demand levels, according to market sources.

LNG imports into Northeast Asia in February slid by 19.72% month over month to 15.56 million mt, according to Platts data. This is down 8.96% from the same period last year.

South Korea saw the largest decline in LNG imports, with volumes falling by 27.42% month over month to 3.44 million mt.

Chinese import volumes in February hit a five-year low of 4.59 million mt, down 25% month over month.

Japan and Taiwan imported 5.85 million mt and 1.68 million mt of LNG, respectively, in February, down 12.1% and 9.59% month over month.

Post-winter

The Northeast Asian region is due to enter the shoulder season, where demand for spot cargoes is typically lower.

However, market sources said buying interest from price-sensitive buyers could be triggered amid the recent decline in JKM prices.

"Spot prices are gradually reaching more attractive levels, but it may not yet be low enough to trigger strong price-sensitive demand from Korean buyers," a Singapore-based trader said.

In China, buyers were targeting a price of $11.50/MMBtu or lower as downstream prices were around Yuan 4,800/mt, according to a source based in China.

Meanwhile, lower prices sparked buying interest across Southeast Asia and South Asia with incremental demand expected in the coming weeks as the peak heat season approaches.

"Incremental purchases for summer are likely to come from South and Southeast Asia depending on weather," a Singapore-based trader said.

Additionally, industry participants remain wary of geopolitical-related risks as headline news continues to drive the market.

In recent news, US President Donald Trump March 7 threatened to put "large-scale" sanctions and tariffs on Russia until a ceasefire and peace deal with Ukraine is reached.

Market participants continue to monitor further trade developments, following the Trump administration's imposition of an additional 20% tariff on Chinese goods on March 4.