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For Asian LNG prices this winter, all eggs are in China basket, Platts Analytics says


Winter JKM prices expected to cross the $6/MMBtu level

China's winter gas demand expected to grow year on year

JKM could be squeezed between oil ceiling, bullish Henry Hub

Singapore — How high Asian LNG prices jump this winter will depend on three key factors—the extent of Chinese demand, the Henry Hub price floor set by US gas production and the cost of contracted supply set by crude oil prices, according to S&P Global Platts Analytics.

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Winter JKM prices are expected to cross the $6/MMBtu level and the Asian LNG market will continue to remain in deficit and pull LNG cargoes into the region, although how much US LNG and Atlantic basin volumes get pulled in remains to be seen, the analysts said at their client seminar on Sept. 11. The S&P Global Platts JKM for October was assessed at $4.550/MMBtu on Sept. 10.

"A lot of emphasis is going to fall on China for winter demand recovery," Jeff Moore, Manager for Asia LNG Analytics at Platts Analytics, said.

"By and large, we're expecting JKM to see continued support through the winter. But this is really hinging on Chinese demand and whether or not it actually shows up. And, if we do see a cold winter or a significantly stronger Henry hub, the outlook for JKM obviously would be more bullish," he added.

While Japan remains the world's largest LNG importer, and North Asia's other LNG heavyweights are South Korea and Taiwan, China's winter procurement has been increasingly been the deciding factor in driving up spot market activity and winter LNG prices.

Additionally, both Japan and South Korea are well contracted and their demand growth from normal temperature changes are being offset by lower economic activity and higher gas inventories, Platts Analytics said.

Moore said China's natural gas demand is expected to return to historic levels of implied demand growth this upcoming winter, reaching as much as 1.15 Bcm/day, surpassing the previous winter when demand hit around 1 Bcm/d.

What's important from an LNG perspective, which only makes up about 30% of Chinese natural gas supply, is that LNG is the swing fuel for incremental demand, Moore said. "So basically, if weather changes and impacts natural gas demand, it will likely fall on LNG to make up the difference," he added.


Two markets that impact JKM spot LNG prices are crude oil and Henry Hub natural gas in the US. Other important markets are Qatari LNG prices and European gas markers like TTF and NBP.

This winter global crude oil prices, which have eased due to oversupply and weak demand projections, and Henry Hub prices, that have risen due to the supply cuts from US shale, are likely to shape JKM prices.

ICE Brent November crude futures were at $39.92/b in Asian afternoon trade on Sept. 11, having dropped from over $45/b in early September. US natural gas prices, which were below $1.80/MMBtu for most of this year, crossed $2.50/MMBtu in late August, and currently trade around $2.30/MMBtu.

There is the potential for a much more bullish Henry Hub case, which really sets the floor for global gas prices while the US starts to look to balance their gas market on cutting exports, Moore said.

On the other hand, oil-indexed LNG contract prices are likely to become much more relevant this upcoming winter, severely limiting the upside for JKM because of the ability for Asian buyers to upward nominate uncontracted capacity and generally serve as a ceiling for JKM, he added.

The oil price ceiling will become much more relevant for JKM, likely for the first time since late 2018, Moore said. "This is setting up a really interesting and important scenario where you do get a bit of a squeeze on JKM this upcoming winter because of the higher floor and a potentially lower ceiling."


Ira Joseph, Head of Gas and Power Analytics at S&P Global Platts, said another key thing to watch out for in coming months is Russian gas exports that have played a critical role in balancing global gas markets and prevented Asian gas markets from being flooded.

When Russian gas exports were cut back it really allowed for more LNG to move into Europe this summer, making Europe the seasonal dumping ground for unwanted LNG, Joseph said. With Europe absorbing Atlantic Basin LNG, particularly US LNG, Asian spot JKM prices found support and were prevented from collapsing altogether this year.

"That's not just going to be true this summer. That's going to be true for the future. Russian gas, even Russian pipeline gas is not just a European issue anymore. It's more of a global issue. And it's a global balancer," Joseph said.