London — A collapse in the JKM Asian LNG price for delivery in May has pushed its value below the Dutch TTF gas price for the first time since February 2015, opening the arbitrage for spot LNG cargoes from the Middle East to Europe rather than to destinations in Asia.
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However, with US LNG export economics rapidly deteriorating, the bear run could be on the verge of approaching stronger resistance as the possibility of a price-driven reduction in US LNG exports increases.
Under current pricing conditions, the arbitrage for sending spot Atlantic-sourced cargoes, such as US LNG, to Asia rather than to Europe moved further out of the money, with the TTF-JKM spread flipping from a discount to a $0.27/MMBtu premium for May delivery on Thursday, according to S&P Global Platts price assessments.
The extent of the premium indicates also that spot cargoes from the Middle East have now a great economic incentive to move to Europe rather than the closer Asia market.
The difference between shipping costs from Middle East to Europe and those to Europe is about $0.26/MMBtu, according to Platts assessments.
Asian buyers of Qatari LNG could nominate down their take-or-pay import contracts, with the surplus LNG likely to find a home in Europe.
Also Qatargas has taken advantage of the tepid demand environment to begin maintenance, with loadings falling by 60 million cu m/d on the month through March to date. Of these loadings, a larger portion is being pointed toward Atlantic Basin markets, according to Platts Analytics.
European LNG send-out since the start of the winter in October 2018 has more than doubled on the year to 223 million cu m/d from 108 million cu m/d, according to Platts Analytics data.
LNG imports into Europe (including Turkey) are expected to increase in Q2 by 40% or 75 million cu m/d on year to an average 260 million cu m/d.
The JKM price has been falling sharply since the start of the winter season, driven by lower Asian demand due to a mild winter and healthy stocks.
According to Platts assessments, the JKM for May delivery was priced at just $4.43/MMBtu Friday ($4.60/MMBtu Thursday) -- down from a recent high of just over $12/MMBtu in September 2018.
European gas prices have also been mostly on a bear run in the past few months, prompted by strong LNG imports, very mild weather and robust gas stocks, with the TTF price for May delivery assessed Thursday at $4.871/MMBtu.
Further out in Q3, the JKM-TTF differential widens again, with the JKM swap assessed at $5.70/MMBtu and TTF at $5.03/MMBtu Thursday.
With the spread at $0.67/MMBtu, just above the $0.54/MMBtu shipping differential, the spot Atlantic LNG arbitrage is still closed, favoring delivering to Asia.
"There is still a slight premium down the curve but it's narrowing," an LNG market participant said.
European gas also continues on its bearish trend, with a significant storage surplus at the end of the winter season, leaving a bleak outlook for injection demand this summer.
European gas storage levels are currently close to 17.3 Bcm higher year on year and more than a 50% the five-year average, according to Platts Analytics.
A combination of lower storage demand and an LNG supply-driven push into Europe could put further pressure on European gas prices, sending a bearish signal to power prices and carbon certificate demand.
It could be balanced by a combination of a turn-down of the flexible component in Russian imports, an increase in coal-to-gas switching in the power sector and ultimately, as plunging gas prices point to, a reduction in LNG exports from the US or a pickup in Asian price-sensitive demand.
With European already absorbing the growing LNG supply in ever higher volumes, the picture is poised to become even softer with US LNG set to ramp up this year.
Peak LNG terminal capacity there is expected to more than double from 3.4 Bcf/d to 7.8 Bcf/d (80.6 Bcm/year) by the end of the year.
However, the short-run economics of US LNG exports under the 115% Henry Hub model have rapidly deteriorated through March to a modest $0.30/MMBtu premium over Henry Hub sales, compared with an average of $1.90/MMBtu in February. This could eventually trigger a switch from LNG exports towards domestic sales that could eventually put a brake on the global bear run of gas and generating fuels complex.
Feedgas to Sabine Pass LNG terminal dropped by a third to 71 million cu m/day through the week ending Friday, while Corpus Christi's feedgas was unchanged, according to Platts Analytics data.
-- Fabio Reale, email@example.com
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