Winter temperatures below seasonal norms in the Northern Hemisphere have led to an increase in natural gas prices from Asia to Europe. Spot prices for liquefied natural gas (LNG) in North Asia rose to record highs last week, while the main price marker in Europe, the Dutch Title Transfer Facility (TTF), hit the highest in more than two years.
The natural gas markets at the beginning of 2021 look completely different from the beginning of last year, when milder weather and the demand pandemic dragged natural gas prices to historic lows.
This winter season, a revival in Asian demand for natural gas, supply problems with major LNG exporters, logistics problems at the Panama Canal, rising tanker rates and last but not least, the cold snap from Madrid to Tokyo, are pushing gas prices up.
Even as temperatures return to seasonal norms in the coming weeks and Polar Vortex-induced cold spells in Europe end, natural gas prices will be supported throughout the spring and summer as buyers would want to replenish, analysts say.
Record high Asian LNG prices may not last long, but these generally higher prices than last year’s lows will support prices in Europe, which is likely to receive fewer LNG cargoes this winter as spot prices in Asia are many, much higher.
In just two months, the global natural gas market turned from an oversupply or, at best, a balanced market to a tight one, leading to price increases from Asia to Europe. The much higher prices in Asia and Europe than the American benchmark Henry Hub According to analysts, spot sales of US LNG to those markets and maximizing US liquefaction capacity will be encouraged.
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Spot LNG prices in Asia have seen an impressive rise in the past two months and are now 18 times as high as April 2020 lows – and the golf is erasing even the recent rise in Bitcoin prices.
A perfect storm of unusually cold winter in North Asia, outages at major LNG exporters and logistics and shipping restrictions have driven the price of Asia’s LNG benchmark, the Japan-Korea Marker (JKM), to last week’s highs. surging over $ 30 per million British thermal units (MMBtu) for the first time.
In Spain, home to one of Europe’s largest terminals, LNG prices also rose sharply amid an unusual cold snap in the country, which caused a rare snowfall in Madrid.
The lower than normal temperatures in many parts of Europe are driving higher than normal gas withdrawals, paving the way for higher than expected demand in spring and summer for replenishing supplies.
Goldman Sachs is expecting one “Perfect Bullish Storm” for natural gas prices this year, and increased the price forecasts for the European benchmark, the Dutch Title Transfer Facility (TTF), to $ 8.30 / MMBtu for the remainder of this winter, from $ 6.65 / MMBtu previously expected. Goldman also raised the outlook for the spot Asia LNG price from $ 12.65 / MMBtu to $ 14.30 / MMBtu.
“The current cold snap in the Northern Hemisphere paves the way for a tighter global gas market year round,” says Wood Mackenzie said last week in his outlook for the gas market for 2021.
After the dramatic rise, Asian LNG spot prices will fall in the second quarter, but the current cold snap paves the way for an increasingly tighter summer gas market, compared to what looked like a balanced summer a month ago, WoodMac says.
Gas storage levels in Europe are already more than 15 billion cubic meters lower than last year and are now close to the average for the past five years. Predictions of higher coal and European carbon prices, also partly prompted by the current cold snap, “provide room for higher European gas demand in summer,” the consultancy noted.
“Global prices hit record lows in 2020, with a TTF averaging US $ 3.2 / mmbtu and an Asian LNG spot averaging US $ 3.9 / mmbtu. 2021 will show a big difference, we expect a TTF averaging US $ 5.6 / mmbtu and an Asian LNG spot averaging US $ 7.6 / mmbtu, ”said Wood Mackenzie Vice President Massimo Di Odoardo.
The sharp rise in Asian LNG spot market prices is good news for US exporters.
The wide spread between Asian LNG prices and Henry Hub suggests there is “very little chance” of seeing anything Cancellations of US LNG Freight– as in summer 2020 – coming soon, Warren Patterson, ING’s Head of Commodities Strategy, said in the bank’s Energy Outlook 2021.
“Regional gas markets will be better supported in 2021, and it seems increasingly unlikely that we will see a repeat of freight cancellations this year,” added Patterson.
By Tsvetana Paraskova for Oilprice.com
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