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JKM hits one-year high on LNG supply disruptions, winter buying

Highlights

Supply issues from US, Norway, Nigeria tightens market

North Asia demand emerges on colder winter forecast

Typhoon in S Korea lifts LNG power generation demand

Singapore — JKM, S&P Global Platts' benchmark for spot LNG prices in North Asia, rallied to hit one-year high on increased winter buying activity amid forecasts of a cold winter along with supply disruptions in the US, Norway, and Nigeria.

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JKM prices have remained at its one year high of $6.613/MMBtu since Oct. 16, up more than three-fold from its historic low on April 28 at $1.825/MMBtu. JKM was last assessed higher on Oct. 23, 2019, at $6.668/MMBtu, Platts data showed.

LNG price - Platts JKM

SUPPLY DISRUPTIONS

On the supply side, outage of Equinor-operated Hammerfest LNG plant, uncertainty of production due to Norwegian strikes, disruption caused by Hurricane Laura and Delta on the US export facilities along with recent issues in a Nigerian LNG plant contributed to bullish sentiment.

Norway's Hammerfest LNG plant is down since Sept. 28, when a fire broke out and is expected to be back online only in January 2021. The oil workers' strike in the country also led to lower gas flows from Norway to continental Europe earlier in October, with prompt-month TTF up more than 13% from the beginning of the month to $5.136/MMBtu on Oct. 19, Platts data showed.

In US, Hurricane Laura and Delta caused supply disruptions for exports from Cameron and Sabine Pass LNG facilities. A fire outbreak at Sabine Pass Train 1 on Oct. 11 along with a sunk semi sub rig in Sabine Pass' shipping channel is restricting vessel flows. Furthermore, a rock barge sunk in the Calcasieu Channel and is currently restricting LNG traffic to vessel with a draft of 36 feet and below. The seven-day rolling average of exports from both the terminals is down to 43.3 million cu m/day Oct. 20 from 97.4 million cu m/day beginning of the month, S&P Global Platts Analytics data showed.

Nigeria's Bonny LNG outage is adding to the tightness in the spot LNG market, with the seven-day rolling average of exports falling to 50.38 million cu m/day Oct. 20 from 81.9 million cu m/day in starting of October, Platts Analytics data showed. One train at the Bonny LNG facility was heard to be down due to an unplanned maintenance, but it could not be confirmed.

WINTER BUYING

Forecasts of a cold winter along with supply disruptions strengthened the bullish market sentiment for spot LNG prices, with buying interest emerging from South Korea's Kogas, China's Sinopec and other end-users from Taiwan and Japan.

Japan and South Korea are expected by their respective meteorological agencies Oct. 19 to experience temperatures generally ranging from below-average to average in nature in the upcoming months.

South Korea's demand has been robust ahead of winter, with Kogas's LNG sales in September rising by 4.9% year on year due to increased power generation demand on the back of nuclear reactors being shut down due to typhoons. Kogas has also issued a tender for six cargoes over November 2020–January 2021, with offers due on Oct. 21.

Japanese imports have also picked up pace, with September imports being higher year on year by 10.5 million cu m/day to 281.2 million cum/day, the first monthly gain in imports year on year from January 2020. Buying interest from Japanese users have been healthy, with Japex recently buying a Dec. 7-14 DES Soma cargo near $6/MMBtu.

Chinese imports have also witnessed a strong recovery post-coronavirus lockdown, with September imports up more than 15% year on year to 254.7 million cu m/day in September. Sinopec had bought 12 JKM-linked cargoes for its winter requirement over November to March and Guangzhou has recently bought a Dec. 24-30 delivery cargo around $6.20/MMBtu.

Strength in spot LNG prices was also seen during the Platts Market on Close assessment process, with PetroChina and Gunvor selling two December cargoes to Vitol at $6.62/MMBtu and December TTF plus $1.65/MMBtu on Oct. 16.

While supply concerns and winter buying has pushed up spot LNG prices, there could be some pressure on prices with alternative fuels becoming more competitive and some oil-linked term contracts becoming more economical than spot prices.

"The dramatic increase in JKM showcases how tight the Asian market has become and how much it will have to rely on supplies from outside the region. However, sellers are probably much more comfortable selling at current prices and increasing output to do so, meaning that without support from colder than normal temperatures this winter, spot LNG prices have limited upside," Jeff Moore, Manager, Asian LNG Analytics at Platts Analytics, said.