BAKU, Azerbaijan, Dec.2. While liquified natural gas (LNG) prices are forecast to decline, market tightness looks set to spill over into the new year, leading to an average price of USD25/mnBTU for JKM in 2023, down from USD35/mnBTU this year, Trend reports via Fitch Solutions.
“Global market dynamics have shifted radically in the wake of the war in Ukraine. Europe has traditionally acted as the global gas sink, soaking up excess cargoes from Asia in times of surplus and diverting cargoes to the East, when the market has been tight. The role has been enabled by the region's large and liquid gas networks and adequate supplies of piped gas,” reads the latest report by the company.
However, Fitch Solutions’ analysts note that since the loss of Russian gas, European buyers have been scrambling for supplies, reversing the flow from Asia, despite ongoing tightness in the LNG market.
“In the eight months since the invasion, the European benchmark TTF has averaged at a USD7/ mnBTU premium over JKM, far above the USD1.2/mnBTU discount averaged over the same period last year. In the 10 months to October, European LNG imports have risen by more than 50bcm, or almost 75%, year-on-year. All markets have registered an increase this year, ranging from 6% growth in Portugal, to 156% growth in Belgium. However, it is the major LNG buyers – the Netherlands, Spain, UK and France - that have dominated the region's gains in volume terms.
The term structure in LNG is also incentivising suppliers to hold volumes in storage and sell them forward. The market is currently in contango, with futures prices raised above spot prices, opening the door on storage arbitrage. Depending on storage costs, sellers can hold cargoes for delivery during the peak demand season over the northern hemisphere's winter (December to February) and profit from the difference between current and forward LNG prices,” the report reads.