Winter temperatures below seasonal norms in the northern hemisphere have created rising gas prices from Asia to Europe. Spot prices for liquefied natural gas (LNG) in North Asia rose to record highs last week, while Europe’s main price indicator, the Dutch Securities Transfer Facility (FTT), rose to its highest level in two years .
The natural gas markets at the beginning of 2021 look completely different from the beginning of last year, when the milder weather and the pandemic affected by demand pushed natural gas prices to historic lows.
This winter season, a return in Asian demand for natural gas, supply problems to major LNG exporters, logistics problems in the Panama Canal, rising oil tariffs and, last but not least, the cold from Madrid to Tokyo, are causing gas prices.
Even when temperatures return to seasonal norms in the coming weeks and the cold spells caused by Polar Vortex in Europe end, gas prices will continue to hold up until spring and summer as buyers seek to repopulate, analysts say.
Record prices for Asian LNG may not last long, but these prices, which are generally higher than last year’s lows, are meant to support prices in Europe, which will likely receive fewer LNG shipments this winter. given that spot prices in Asia are very high, much higher.
In just two months, the global gas market has turned from an overburdened or finely balanced market, at best, to a tightening market, leading to rising prices in Asia and Europe. Prices much higher in Asia and Europe than American landmark Henry Hub will boost spot LNG sales in the US to those markets and maximize US liquefaction capacity, according to analysts.
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LNG spot prices in Asia have held an impressive rally in the last two months and have now risen 18 times from the April 2020 lows – and growth is obliterating even the recent rally of Bitcoin prices.
A perfect unusually cold winter storm in North Asia, disruptions to major LNG exporters and logistical and shipping constraints have led to the Asian LNG reference price, the Japan-Korea Marker (JKM), the highest record last week, going up over $ 30 per million British thermal units (MMBtu) for the first time.
In Spain, hosting one of the largest terminals in Europe, LNG prices have also risen against the background of an unusual cold in the country, which brought a rare snow to Madrid.
Lower-than-normal temperatures in many parts of Europe lead to higher gas withdrawals than usual, setting the stage for higher-than-expected demand in spring and summer for replenishing stocks.
Goldman Sachs expects “Perfect climbed storm” for natural gas prices this year and raised its forecast for European reference prices, the Dutch Securities Transfer Facility (FTT), to 8.30 USD / MMBtu for the rest of this winter, from 6.65 USD / MMBtu expected earlier. Goldman also raised its spot prospects for the Asia LNG price to $ 14.30 / MMBtu from $ 12.65 / MMBtu.
“The current cold snap in the northern hemisphere paves the way for a tighter global gas market throughout the year,” Wood Mackenzie said last week in the perspective of the gas market in 2021.
After the impressive rise, Asian spot LNG prices will fall in the second quarter, but the current cold weather sets the stage for a tighter summer gas market, compared to what seemed like a finely balanced summer just a month ago. , says WoodMac.
Gas storage levels in Europe are already over 15 billion cubic meters lower than last year and are now close to the average of the last five years. Forecasts of higher European coal and carbon prices, also partly driven by cold weather, “provide room for higher European demand for summer gas,” the consultancy said.
“Global prices reached record lows in 2020, FTT averaging $ 3.2 / mmbtu and Asian LNG spot averaging $ 3.9 / mmbtu. 2021 will show a strong difference, we anticipate the FTT on average 5.6 USD / mmbtu and the Asian LNG spot on average 7.6 USD / mmbtu “, said Wood Mackenzie Vice President Massimo Di Odoardo.
Rising spot prices for LNG in Asia are good news for US exporters.
The widespread spread between Asian LNG prices and Henry Hub suggests that there is “very little chance” of seeing Cancellation of US LNG cargo– as in the summer of 2020 – soon, Warren Patterson, Head of ING Commodity Strategy, said in the bank’s Energy Outlook 2021.
“Regional natural gas markets will be better supported in 2021 and it seems less and less likely to see repeat cargo cancellations this year,” Patterson added.
By Tsvetana Paraskova for Oilprice.com
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