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Platts JKM hits all-time high at $20.705/MMBtu on cold snap, shipping constraints

Highlights

Previous high was $20.20/MMBtu on Feb 14, 2014

EEX Feb 21 Japan power futures at Yen 31/kWh, or about $87/MMBtu

Trucked LNG in some north China areas touch Yuan 10,000/mt

Asia-Pacific spot LNG prices breached the $20/MMBtu mark to hit an all-time high on Jan. 7, amid a cold snap across northeast Asia and persistent shipping constraints.

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The JKM was assessed at $20.705/MMBtu Jan. 7, the highest the LNG benchmark has been since S&P Global Platts launched it on Feb. 2, 2009. The previous high was at $20.20/MMBtu on Feb. 14, 2014.

End-users across Japan, South Korea and China have been scouring the market for prompt cargoes as LNG inventory sank to critical levels in certain regions.

The low stock levels were driven by a lack of shipping availability and nagging supply issues in the Asian producing countries like Malaysia.

Shipping constraints in the Panama Canal have restricted supply from the Atlantic region as well, with vessels facing a longer shipping route around the Cape of Good Hope into Asia.

"It's a situation this winter that nobody would have expected at all. It's pretty much the worst-case scenario with a sudden drop in temperatures happening at the same time as a crisis in cargo supply and shipping," a Singapore-based trader said.

In a move last seen after the 2011 Fukushima nuclear-reactor incident, Japan's Tepco Power Grid was seeking to buy electricity from private companies.

Major Japanese power utilities have also announced they would be lowering electricity supply to Japan Electric Power Exchange, or JEPX, according to JEPX data available on Jan. 7.

The 24-hour average electricity prices in Japan was Yen 99.9/kWh on Jan. 7, which is equivalent to $279/MMBtu, according to JEPX. Japan power futures for February delivery listed on the EEX, an European exchange, settled at Yen 31/kWh, or about $87/MMBtu, on Jan. 6.

In China, trucked LNG prices surged to around Yuan 10,000/mt ($1,550/mt) in the northern Beijing-Tianjin-Hebei region in the week started Jan. 3, nearly double from around Yuan 5,000-6,000/mt seen the week earlier, market sources said.

Temperatures in Beijing dropped below minus 18 degrees Celsius on Jan. 6, the lowest in 20 years, prompting a sharp rise in heating demand.

Supply disruptions

The price rally, which began in earnest from August 2020, is significant for a number of market participants -- from suppliers targeting final investment decisions for new liquefaction projects, to new buyers looking to lock in long-term agreements.

Prices had hit an all-time low of $1.825/MMBtu on April 29, 2020, when the coronavirus pandemic depressed already tepid global LNG demand.

Over April-July, JKM was hovering at close to the price of US natural gas amid a supply glut in Asia and Europe, which resulted in at least 150 cancellation of US offtake cargoes over the June-September delivery period.

The US LNG cancellations started to rebalance the market through summer, but a slew of production issues across global LNG facilities sparked an unprecedented supply-side response.

These include outages at US facilities during the hurricane season in August, shutdown of Norway's Hammerfest project in September, as well as production issues at Qatar, Malaysia and Nigeria in November.

However, market participants are cautious about the price rally continuing, with a large backwardation seen from February to March.

Platts assessed second-half February, first-half March and H2 March at $17.811/MMBtu, $12.628/MMBtu and $8.751/MMBtu, respectively.

On the supply-side, a fresh wave of Atlantic supply was expected to hit the region in late-February to early March.

"March will be a turning point ... there will be more Panama transits and then more cargoes arriving, mostly from the US," a China-based end-user said.

In addition, with the current cold snap in Asia phasing out and a new lockdown imposed in Tokyo, demand could come under pressure further out, sources added.

Platts Analytics base case demand forecast sees a substantial drop in APAC LNG demand through the first quarter of 2021, with at least 1.074 Bcm/d in February and 983 million cu m/d in March.