In this list
Coal | Natural Gas | Oil | Shipping

Asian LNG spot trade boosts benchmark linkage on uncertainty, intra-day shifts

Commodities | Energy | Energy Transition | Oil | Crude Oil | Refined Products | Fuel Oil | Gasoline | Jet Fuel | Shipping

Will jet fuel demand ever recover to pre-pandemic levels in Europe?

Energy | Natural Gas | Natural Gas (North American) | Oil | Crude Oil

Platts Upstream Indicator

Crude Oil | Coal | Coronavirus | Natural Gas

S&P Global Platts Client Analytics Seminar

Energy | Natural Gas | Oil | Metals | LPG | Non-Ferrous

UAE's Dana Gas to operate onshore Egypt assets after winning arbitration case

Energy | Electric Power | Energy Transition | Emissions | Renewables | LNG | Natural Gas

Propane lights up the Tokyo Games, as hydrogen makes its Olympic debut

Asian LNG spot trade boosts benchmark linkage on uncertainty, intra-day shifts

Highlights

All MOC data for June 16-July 15 published on floating price basis

Up from 70% in May 16-June 15, 29% in April 16-May 15

JKM derivatives cleared in Q2 rise 39% year on year

The Asia-Pacific spot LNG market has witnessed a marked shift away from trading on a flat price basis toward floating price basis in the past three months amid heightened intra-day price movements and market uncertainty.

Not registered?

Receive daily email alerts, subscriber notes & personalize your experience.

Register Now

The number of spot deals linked to benchmarks on a bilateral and tender basis has increased substantially as buyers and sellers grapple with fast-changing market conditions daily, according to industry participants.

This move is significant as most spot cargoes for delivery within 12 weeks have traditionally been concluded on a flat or fixed price basis.

Further out, term cargoes are typically linked to the monthly averages of LNG and oil benchmarks like JKM or Brent, respectively.

"The market is moving so fast during the day, so there are bigger risks involved in [trading] flat prices," a Singapore trader said. "I might have bought a cargo at $13/MMBtu flat. But after a few hours, the market might have gone [up or down by] 50-60 cents/MMBtu," he added.

Market participants attributed the large intra-day price shifts to uncertainty over Asia-pacific LNG summer demand and Atlantic supply, as well as increased volatility in European gas and carbon markets.

MOC process

During the Platts Market on Close assessment process from June 16 to July 15, all 55 bids, offers and trades published were made on a floating price basis. Of these, 89% were published on a JKM-linked basis, while the remainder were on an ICE TTF-linked basis. This was the period assessed for the August JKM and WIM delivery month average.

By comparison, during May 16 to June 15, the period assessed for the July JKM and WIM delivery month, 70% of the 54 bids, offers and trades published were made on a floating price basis. The remaining 30% were reported on a flat-price basis.

The proportion of floating price MOC data was only at 29% of all bids, offers and trades published during the June JKM and WIM delivery month across April 16 to May 15.

Market sources said that monthly index-linked pricing reduces a counterparty's exposure to short-term, or daily fixed-price volatility in spot transactions.

"There are days when the bid-offer gap is bigger than 50 cents/MMBtu or wider, which makes it extremely challenging to reach a deal. But if its on a JKM basis, then its only a conversation over how big the spread [to the monthly JKM price] is," a second LNG trader said.

Furthermore, trading houses and portfolio majors have also sought to back-fill existing positions tied to monthly JKM average prices.

End-users like CPC, PTT, CNOOC, Unipec and ENN had earlier concluded short-term strip tenders across 2021-2022 linked to JKM prices.

The JKM price premiums for July and some August deliveries had risen to as high as 15-20 cents/MMBtu as the market was in a strong contango structure amid relatively strong end-user demand during the summer season.

But sources said premiums for recent deliveries in September have fallen back to less than 10 cents/MMBtu due to higher price levels and market backwardation.

Greater liquidity of LNG derivatives has also increased the visibility of the forward curve throughout the trading day.

JKM derivatives cleared on financial exchanges in Q2, or the April-June period, rose 39% year on year to hit 236,789 lots, or about 46 million mt, according to data from Intercontinental Exchange and Chicago Mercantile Exchange.

There has also been interest for greater transparency in derivatives pricing, with renewed activity in the MOC process last week. Glencore, DGI and Trafigura reported bids, offers and trades for the September JKM futures contract on July 16, July 19 and July 20.

Strong JKM prices

Asia-Pacific LNG demand this year have been supported by China's strong natural gas demand driven by coal-to-gas switching and economic growth, as well as regional production issues across the region including Australia and Indonesia. Persistent production concerns in the Atlantic basin in the US and Nigeria also placed a strain on global supply.

The JKM monthly price for August delivery into northeast Asia rose 18.6% month on month to an average $12.972/MMBtu. By comparison, the August JKM assessment in 2020 was at $2.164/MMBtu, which was close to the historical low of $2.063/MMBtu for the July 2020 average.

More recently, in May and June, record-high carbon markets in Europe have ramped up coal to gas switching and hiked benchmark European gas prices.

This has injected support for JKM prices as both regions compete to pull in Atlantic basin cargoes amid stronger freight rates.

Industry Association GIIGNL estimates that 35% of global LNG volumes were traded on a spot basis in 2020, compared with 27% in 2019.

In terms of delivery location, 75% of bids reported during the MOC process for the August headline delivery month was on JKTC (Japan, Korea, Taiwan and China) basis. The remainder were reported for either DES IDK (India, Dubai or Kuwait) or DES India delivery.