Freezing temperatures push Asian gas prices to new records

SINGAPORE: Freezing temperatures across Asia and Europe are driving liquefied natural gas (LNG) prices to record highs and pushing up European gas prices as buyers grapple with shrinking inventories and a shortage of tankers.

But with milder weather forecast, prices may peak soon as demand for heating fuel diminishes, traders and analysts said.

S&P Global Platts' Japan-Korea-Marker (JKM), a reference point for Asian spot LNG prices, rose to $28.221 per million British thermal units (mmBtu) on Monday for a cargo to be delivered in February. At least one Japanese utility paid over $30 per mmBtu for a cargo for late January delivery, traders said.

On Tuesday, commodity trader Trafigura bought a 3.2 trillion British thermal unit (TBtu) cargo for delivery in mid-February from Total Gas and Power Asia at $39.30 per mmBtu, data from Platts showed.

This is worth nearly $130 million, about 11% more than a cargo for 2 million barrels of oil, based on current prices, Reuters calculations show.

Spot Asian LNG prices have led the energy complex, gaining more than 1,000% since touching a record low below $2 per mmBtu in May during lockdowns to stem the spread of the coronavirus.

"Supply is super tight in the prompt months and inventory levels are quite low in many places," a Singapore-based LNG trader said. "But, as the weather gets mild and supply gradually returns, the situation might improve."

TIGHTNESS

High Asian LNG prices have dragged the whole natural gas complex higher.

Dutch gas prices traded at the TTF hub, the European benchmark, rose to near three-year highs on Tuesday as LNG cargoes were re-routed to Asia and as speculative buying increased.

On Tuesday, the month-ahead TTF price hit 28.55 euros per megawatt hour, or about $7.8/mmBtu, its highest level since the fourth quarter of 2018.

Given the premium in the Asian LNG market compared to Europe, spot cargoes were more likely to flow to Asia rather than Europe, analysts at ING Research said.

Temperatures are expected to rise to above average in Tokyo, Beijing, Seoul and Shanghai over the next few weeks, weather data from Refinitiv Eikon showed.

Supply also appears to be increasing with Shell resuming cargo loadings from its Prelude floating facility in Australia after it was offline for nearly a year, and with increased loadings from Qatar, Russia and the United States, shiptracking data from Eikon showed.

"We expect the current tightness to moderate in coming weeks," Goldman Sachs said on Monday, also citing a continued drop in LNG deliveries and an increase in reloads in Europe, in addition to the milder weather and increasing supply to Asia.

Still, limited LNG tanker availability may keep spot LNG prices elevated, traders said.

LNG tanker rates have more than doubled from a month ago, with the daily charter rate for shipping LNG in the Atlantic basin hitting a record $322,500 as of last Friday, said Tim Mendelssohn, managing director at Spark Commodities.