Asia-Europe LNG spread at widest level in almost a year

SINGAPORE/LONDON: The Asia-Europe liquefied natural gas (LNG) spread has hit its widest level in about a year, data from S&P Global Commodity Insights showed, as congestion at Panama makes sending U.S. LNG to Asia via alternative routes a bit more expensive than normal.

The spread between the Japan Korea Market (JKM), widely used as an Asian LNG benchmark, and the Title Transfer Facility (TTF), the European gas benchmark, was assessed by S&P at $2.79 per million British thermal units (mmBtu) on Dec. 6, its widest since Dec. 31, 2021.

Spreads reflects the market-making differential between buyers and sellers of a commodity. Narrow spreads are a sign of market liquidity.

“Continued issues at Panama Canal are causing a bit of risk premium in the JKM market,” an trading source said.

“It sends a signal that more flexible LNG supply from the Atlantic Basin should be heading to Asia, as the spread currently covers the additional shipping costs.

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But in reality, the bulk of flexible cargoes from the Atlantic Basin are still being exported to Europe, with the long-wait times at Panama Canal and high inventories in Asia capping restocking demand,“ the source said.

The restrictions on the Panama Canal, one of the world’s main maritime shipping routes, meant that tankers carrying LNG cargoes from the United States have to go around longer alternative routs: the Cape of Good Hope or the Suez Canal to reach Northeast Asia, taking around nine days longer.

Jake Horslen, senior LNG analyst at consultancy Energy Aspect, said that only three U.S. LNG cargoes went via Panama towards Northeast Asia/Southeast Asia in November.

“This is very low by historic standards - the average in was 12 cargoes per month in 2022 and 18/month in 2021. In 2023 so far, the average was 12/month until November when it dropped sharply to just 3,” he said.

Asian LNG demand has been tepid since early November due to solid inventories, weak industrial demand and generally mild weather.

“We still see Asia-Pacific balances quite comfortable this winter and expect only a minimal Asian call on U.S. spot LNG, but the Panama congestion makes this marginal call a bit more expensive than normal,” Horselen said.

In Europe, record gas storage inventories and strong floating LNG storage meant the continent is well prepared for winter.

S&P said that the spread between the JKM and the Northwest Europe LNG price reached $3.385/mmBtu on Dec. 6.

“It is only just at the cusp of being profitable to ship cargoes from the United States around Cape/Suez to Northeast Asia. Were the JKM/NWE spread to stay over $3.50/mmBtu for a few days, we would likely to see cargoes flow to Northeast Asia for late-January and early-February deliveries, rather than to Europe,” S&P said.