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Winter temperatures below seasonal norms in the northern hemisphere have caused natural gas prices to rise from Asia to Europe. Spot prices for liquefied natural gas (LNG) in North Asia hit record highs last week, while Europe’s main price marker, the Dutch Title Transfer Facility (TTF), hit its highest level since more than two years.
Natural gas markets at the start of 2021 are completely different from those at the start of last year, when milder weather and the pandemic that hit demand pushed natural gas prices down to historic lows.
This winter, a rebound in Asian demand for natural gas, supply problems at the main LNG exporters, logistics problems in the Panama Canal, soaring tanker prices and, last but not least, the cold snap. from Madrid to Tokyo are driving up gas prices.
Even as temperatures return to seasonal norms in the coming weeks and the cold spells induced by the polar vortex in Europe end, natural gas prices will continue to be sustained throughout the spring and summer, as buyers are looking to restock, analysts said.
Record LNG prices in Asia may not last long, but those prices generally higher than last year’s lows should support prices in Europe, which is expected to receive fewer LNG shipments this winter, given that spot prices in Asia are much, much higher.
In just two months, the global natural gas market has gone from oversupply or at best from a finely balanced market to a tightening market, pushing up prices from Asia to Europe. The much higher prices in Asia and Europe than the The American reference Henry Hub will encourage spot sales of US LNG in those markets and maximizing US liquefaction capacity, analysts said.
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Spot LNG prices in Asia have seen an impressive rally in the past two months and have now climbed 18 times from April 2020 lows – and the the surge is being erased even the recent Bitcoin price rally.
A perfect storm of an unusually cold winter in North Asia, blackouts at the main LNG exporters and logistical and shipping constraints drove the price of the Asian benchmark of LNG, the Japan-Korea marker (JKM), at the highest ever recorded last week, over $ 30 per million British thermal units (MMBtu) for the first time.
In Spain, which is home to one of the largest terminals in Europe, LNG prices have also increased amid an unusual cold snap in the country, which caused a rare snowfall in Madrid.
Below normal temperatures in many parts of Europe are causing higher than usual gas withdrawals, paving the way for higher than expected demand throughout spring and summer to replenish stocks.
Goldman Sachs expects a “Perfect bullish storm” for natural gas prices this year, and raised its forecast for European benchmark prices, the Dutch Title Transfer Facility (TTF), to $ 8.30 / MMBtu for the rest of the winter, from $ 6.65 / MMBtu expected earlier. Goldman also raised its outlook for LNG spot prices in Asia to $ 14.30 / MMBtu from $ 12.65 / MMBtu.
“The current cold snap in the northern hemisphere sets the stage for a tighter global gas market throughout the year,” Wood Mackenzie said last week in its 2021 gas market outlook.
After the impressive surge, LNG spot prices in Asia will fall in the second quarter, but the current cold snap is setting the stage for an increasingly tense summer gas market, compared to what looked like a summer finely balanced just a month ago, according to WoodMac.
Gas storage levels in Europe are already more than 15 billion cubic meters lower than last year and are now close to the five-year average. Forecasts of rising coal and carbon prices in Europe, also partly driven by the current cold snap, “provide leeway for higher European demand for summer gas,” noted the consulting firm.
“Global prices hit record highs in 2020, with an average TTF of US $ 3.2 / mmbtu and an Asian LNG spot averaging US $ 3.9 / mmbtu. 2021 will show a marked difference, we expect TTF to average US $ 5.6 / mmbtu and Asian LNG to US $ 7.6 / mmbtu on average, ”said Wood Mackenzie Vice President Massimo Di Odoardo .
The surge in Asian LNG spot prices is good news for US exporters.
The large gap between LNG prices in Asia and Henry Hub suggests that there is “very little chance” of seeing American LNG Cargo Cancellations– as in summer 2020 – soon, Warren Patterson, head of commodities strategy at ING, said in the bank’s Energy Outlook 2021.
“Regional gas markets will be better supported in 2021, and it looks increasingly unlikely that we will see a repeat of cargo cancellations this year,” Patterson added.
By Tsvetana Paraskova for OilUSD
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