Winter temperatures below seasonal norms in the northern hemisphere caused a rise in natural gas prices from Asia to Europe. Spot liquefied natural gas (LNG) prices in North Asia jumped to a record high last week, while the most important price marker in Europe, the Dutch title transfer facility (TTF), rose the highest in more than two years.
The markets for natural gas at the beginning of 2021 look completely different from the beginning of last year, when the lighter weather and the pandemic that hit demand dragged the prices of natural gas to a historic low.
This winter season, a surge in demand for natural gas in Asia, supply demand from major LNG exporters, logistical issues on the Panama Canal, rising tankers, and last but not least, the cold moment from Madrid to Tokyo, pushes the gas prices higher.
Even when the temperature returns to seasonal norms in the coming weeks and the Polar Vortex cold in Europe ends, the price of natural gas will be supported by spring and summer, as buyers want to replenish, analysts say.
The record high Asian LNG prices may not last long, but generally higher prices than last year’s lows will support prices in Europe, which are likely to receive fewer LNG loads this winter, as spot prices in Asia are high. much higher.
In just two months, the global natural gas market has at best changed from an oversupply or a finely balanced market, leading to price increases from Asia to Europe. The much higher prices in Asia and Europe than the American benchmark Henry Hub will spur U.S. LNG sales to the markets and boost maximum processing capacity in the U.S., according to analysts.
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Spot LNG prices in Asia have held an impressive rally over the past two months and have now risen 18 times from lows in April 2020 – and the boom is wiped out even the recent rise in Bitcoin prices.
A perfect storm of exceptionally cold winter in North Asia, disruptions at major LNG exporters, and logistics and shipping constraints pushed the price of the LNG benchmark in Asia, the Japan-Korea Marker (JKM), to its highest last week achieved. rises more than $ 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 amid an unusual cold in the country, which brought a rare snowfall in Madrid.
The lower than normal temperatures in many parts of Europe lead to a higher gas extraction than usual, which provides the scene for a higher than expected demand during the spring and summer for replenishing supplies.
Goldman Sachs expects a “Perfect stormy storm” for the price of natural gas this year, and increases the forecasts for the prices on the European benchmark, the Dutch title transfer facility (TTF), to $ 8.30 / MMBtu for the rest of this winter, from $ 6.65 / MMBtu that earlier is expected. Goldman also raised its outlook on the price of Asia LNG to $ 14.30 / MMBtu from $ 12.65 / MMBtu.
“The current cold in the northern hemisphere paves the way for a tighter global gas market throughout the year,” Wood Mackenzie said. said last week in its outlook for the gas market for 2021.
After the impressive boom, Asian LNG locomotives prices will fall in the second quarter, but the current cold weather is the basis for a growing summer gas market, compared to what looked like a finely balanced summer just a month ago, says WoodMac.
Gas storage levels in Europe are already more than 15 billion cubic meters lower than last year and are now close to the past five-year average. Forecasts of higher coal and European carbon prices, which are also partly driven by the current cold period, ‘provide room for greater European summer gas demand’, the advisory agency said.
“World prices reached record lows in 2020, with TTF averaging US $ 3.2 / mmbtu and Asian LNG spot averaging US $ 3.9 / mmbtu. 2021 will show a stark difference. “We expect TTF to average US $ 5.6 / mmbtu and Asian LNG spot to average US $ 7.6 / mmbtu,” said Wood Mackenzie’s vice president Massimo Di Odoardo.
The rise in Asian spot LNG prices is good news for US exporters.
The wide spread between Asia’s LNG prices and Henry Hub indicates that there is ‘very little chance’ of seeing US LNG cargo cancellations– as in the summer of 2020 – Warren Patterson, ING’s Head of Commodity Strategy, said in the bank’s Energy Outlook 2021.
“The local gas markets will be better supported in 2021, and it seems increasingly unlikely that we will repeat cargo cancellations this year,” Patterson added.
By Tsvetana Paraskova for Oilprice.com
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