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Japan, South Korea could see warmer than expected weather in Nov, pressuring LNG prices

Singapore — The meteorological agencies of Japan and South Korea forecast the countries will see average to higher-than-average temperatures in November, which may weigh on spot LNG prices.

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Expectations of a warmer weather moving into the end of the year could further add to the weaker sentiment for spot LNG prices seen during the week ended Oct. 31. The drop was catalyzed by outlooks of a warmer-than-usual start to winter.

JKM, the S&P Global Platts benchmark for spot LNG in northeast Asia, fell in the prior week to as low as $6.535/MMBtu Nov. 3. It was assessed up 5.1 cents/MMBtu day on day at $6.679/MMBtu on Nov. 5. Prices have reversed the downtrend seen during the week ended Oct. 31 on supply concerns from Malaysia's Bintulu LNG facility.

The Korean Meteorological Administration's outlook published on Nov. 5 expects average to above-average temperatures for most of South Korea for November.

The Japanese Meteorological Agency's forecast released Nov. 5 also expects above-average temperatures across the country from Nov. 7 through Dec. 6, with all provinces given a 70% probability of warmer-than-average weather, except the Tohoku region and Hokkaido island, for which it put the probability at 60%.

However, predictions of cooler weather in the upcoming winter months for both countries might contribute to an eventual rise in spot LNG prices.

"Some sellers are currently holding back on selling cargoes till January [2021] in hopes of a colder winter, where demand and prices for LNG might increase," said a trader.

Looking ahead, the Korean Meteorological Administration predicts cooler-than-expected to normal weather for December, and average to higher-than-average temperatures for January 2021.

Further down the curve, the Japanese Meteorological Agency predicts a 40% probability of the south of the country experiencing below-average temperatures in the upcoming winter months of December 2020 to February 2021. However, moving northwards, Tohoku and Hokkaido are given a 40% probability of average to warmer-than-average temperatures over the same period.

However, with the recent upward trajectory of prices, spot demand for December delivery remains muted from some Japan-based importers.

"Even with an exceptionally cold winter, it is unlikely we will go below our safety winter inventory level," a Japanese gas utility said.

The weather in northeast Asia has an impact on consumption of LNG, coal, crude oil, fuel oil and LPG, which are used for thermal power generation.