Asia's Vanishing Gas Premium Leaves Europe as Swing Buyer
Asia's Vanishing Gas Premium Leaves Europe as Swing Buyer
(Bloomberg) -- Asia is no longer the premium market for liquefied natural gas.
The key benchmark in the world’s biggest LNG consuming region, S&P Global Platts’ Japan/Korea Marker, has dropped below Dutch Title Transfer Facility prices for the first time since April 2016, according to data compiled by Bloomberg. Five years ago, it wasn’t uncommon for JKM to trade at nearly double European prices.
Prices in Asia have fallen by about half this year, driven by a warmer-than-normal winter and ample spot cargoes as new projects in Australia, Russia and the U.S. ramp up. That’s giving opportunistic buyers in India and Pakistan a chance to snap up some cheap supply and increasing the likelihood that more LNG will flow to Europe, displacing coal in the continent’s generation mix.
“The spreads indicate that Asian fundamentals remain very weak,” said Edmund Siau, an analyst with energy consulting firm FGE in Singapore. “We expect to see a reduction in the flow of Atlantic basin cargoes to Asia this spring.”
The slump is luring buyers like India’s Reliance Industries Ltd. and Torrent Energy Ltd. that usually only dip into the spot market when cargoes are cheap. It’s also benefiting state-owned energy giants in China such as PetroChina Co., which typically take a loss buying LNG in order to feed growing import demand, according to Sanford C. Bernstein & Co.
Suppliers, meanwhile, are trying to find shelter from the storm. The weak prices provide an opportunity for LNG producers to shut output for maintenance, according to Maggie Kuang, an analyst at BloombergNEF. Cheniere said last week that two trains at its Sabine Pass project in the U.S. have entered maintenance, while a train at Chevron Corp.’s Gorgon plant in Australia was offline for at least a month through February.
“The market is going to test people this year” because of weak prices, Russell Hardy, CEO of Vitol Group, said in an interview in Lausanne, Switzerland.
JKM slipped to $4.375 per million British thermal units on Tuesday, the lowest since April 2016, according to Platts. TTF closed at $4.774 per million Btu.
It will be hard for Asian prices to fall too far below TTF because it’ll spur more buying by Europe, removing the surplus supply that’s weighing on prices. The relative cost of coal, including carbon offsets that are required in the European Union, is key because it determines the level at which Europe starts buying more gas, providing a floor to TTF prices. A drop in Asian LNG below that level would spur more imports.
“European coal prices will underpin European gas prices, and hence support LNG import prices through the rest of 2019," Sims said by email. “The opening and closing of the East-West arbitrage is likely to become a feature of global LNG pricing, and indeed flows going forward.”
--With assistance from Anna Shiryaevskaya and Andy Hoffman.
To contact the reporters on this story: Dan Murtaugh in Singapore at dmurtaugh@bloomberg.net;Stephen Stapczynski in Singapore at sstapczynsk1@bloomberg.net
To contact the editors responsible for this story: Ramsey Al-Rikabi at ralrikabi@bloomberg.net, Alexander Kwiatkowski
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