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Soaring Asian LNG prices to boost EU gas in Jan

GasFreightLNG

30 Dec 2020 13:46

Foto: Vytautas Kielaitis, Shutterstock.com

Foto: Vytautas Kielaitis, Shutterstock.com

London

30 Dec 2020 13:46

(Montel) Surging prices in Asia for liquefied natural gas (LNG) will likely continue to bolster natural gas prices in Europe and the UK in the first weeks of 2021, but further out, an easing of global supply constraints on LNG should lead gas prices to soften.

The Asian benchmark February 2021 contract for LNG continues to trade at record highs and closed at EUR 30.83/MWh on Tuesday, according to data from Metanopoly.

In turn, January 2021 gas contract on the Dutch TTF continued to exceed the recent 22-month high and was last seen at EUR 19.370/MWh on Ice Endex. The UK’s NBP front month contract rose by 1.40p/th to 57p/th at a broker, while Germany’s NCG front month product last traded up EUR 0.43/MWh at EUR 18.93/MWh.

Supply constraints for LNG cargoes, including vessel restrictions on key trade routes serving markets in the Far East, and production issues at LNG plants in Australia and Malaysia have caused Asian LNG prices to spike, sources said.

Cold weather in countries such as China and South Korea and the subsequent rise in demand for heating purposes compounded the price increase.

“The market is pretty tight. But through Q1 prices should begin to fall as the supply constraints ease,” one source said, adding that uncertainty over when the supply concerns would begin to abate could fuel bullish sentiment initially.

Currently, vessels carrying LNG from the US to Asia are facing congestion along the Panama Canal. While traders may opt to re-route cargoes, this drives up freight rates and adds to the expense of shipping LNG cargoes, particularly when trying to meet demand in a spot market, the source said.

Cold snap
In Europe meanwhile, forecasts for cold weather lent additional support to gas prices.

“[Tuesday] saw temporarily lower prices because of increased chances of warmer weather but this disappeared overnight,” one Europe-based analyst told Montel.

According to Montel Energy Quantified, temperatures in Germany, Europe’s biggest gas market, could fall to more than 2 degrees below average by the end of week 52 and into the first week of 2021. In Spain, temperatures could plunge by as much as 6 degrees below average over the coming days.

Gas markets across Europe were particularly temperature sensitive at the moment, said a Spanish market participant. 

Colder temperatures in Europe coincided with a squeeze on gas storage stocks, adding further to bullish sentiment.

According to data from Gas Infrastructure Europe (GIE), European gas storage facilities were 75.53% full on 28 December, compared with nearly 88% and 88.5% full on 30 November and 30 December 2019, respectively.

“In Europe, the surplus of stocks is melting like snow under the sun,” one French trader said, adding that the UK in particular was facing a ‘stark deficit’ in terms of supply on the prompt.

Additional reporting by Tasmin Chowdhary, Sophie Louise Tetrel and Pablo Bronte

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