Winter temperatures below seasonal norms in the northern hemisphere have created a rise in natural gas prices from Asia to Europe. Spot prices for liquefied natural gas (LNG) in North Asia jumped to record highs last week, while Europe’s key price marker, the Dutch Title Transfer Facility (TTF), has risen to the highest in more than two years.
The natural gas markets in early 2021 look completely different from the beginning of last year, when the milder climate and the pandemic reaching demand pushed natural gas prices to historic lows.
In this winter season, a recovery in Asian natural gas demand, supply problems at the main LNG exporters, logistics problems in the Panama Canal, rising oil tanker rates and, last but not least, the cold wave of Madrid to Tokyo are raising gas prices.
Even when temperatures return to seasonal patterns in the coming weeks and the cold periods induced by the Polar Vortex in Europe are over, natural gas prices will continue to be sustained during the spring and summer as buyers seek to refuel, analysts say.
Record LNG prices from Asia may not last long, but these prices generally higher than last year’s lows are set to support prices in Europe, which is expected to receive less LNG loads this winter, considering that spot prices in Asia are much, much taller.
In just two months, the global natural gas market is no longer an oversupply or balanced market, at best, to an increasingly tight market, leading to price increases from Asia to Europe. Much higher prices in Asia and Europe than the US reference Henry Hub it will encourage US LNG cash sales to these markets and maximize US liquefaction capacity, according to analysts.
Related: UAE oil turns to hydrogen
Spot LNG prices in Asia have made an impressive recovery in the past two months and have now skyrocketed 18 times from April 2020 lows – and the wave is obliterating even the recent rise in Bitcoin prices.
A perfect exceptionally cold winter storm in North Asia, disruptions to major LNG exporters and transportation and logistical restrictions raised the price of Asia’s LNG, the Japan-Korea Marker (JKM), to the highest it recorded last week, flying above $ 30 per million British thermal units (MMBtu) for the first time.
In Spain, home to one of the largest terminals in Europe, LNG prices have also gone up amid an unusual cold wave in the country, which brought a rare snowfall in Madrid.
Lower-than-normal temperatures in many parts of Europe are leading to higher-than-normal gas withdrawals, setting the stage for higher-than-expected demand during spring and summer for replenishment stocks.
Goldman Sachs expects a “Perfect high storm” for natural gas prices this year, and raised its projections for prices in the European benchmark, the Dutch Title Transfer Facility (TTF), to $ 8.30 / MMBtu for the rest of this winter, from $ 6.65 / MMBtu expected previously. Goldman also raised its Asian LNG spot price outlook to $ 14.30 / MMBtu from $ 12.65 / MMBtu.
“The current cold spell in the northern hemisphere is paving the way for a tighter global gas market throughout the year,” Wood Mackenzie said last week in its prospects for the gas market for 2021.
After the impressive increase, Asian LNG spot prices will fall in the second quarter, but the current cold spell is setting the stage for an increasingly tight summer gas market, compared to what seemed like a perfectly balanced summer just now. a month, said WoodMac.
Gas storage levels in Europe are already more than 15 billion cubic meters less than last year and are now close to the average of the past five years. Higher coal and European carbon price forecasts, also partly driven by the current cold spell, “provide room for greater European summer gas demand,” noted the consultancy.
“Global prices reached record lows in 2020, with TTF averaging $ 3.2 / mmbtu and Asian LNG spot averaging $ 3.9 / mmbtu. 2021 will show a big difference, we predict TTF with an average of US $ 5.6 / mmbtu and Asian LNG site with an average of US $ 7.6 / mmbtu ”, said Wood Mackenzie Vice President Massimo Di Odoardo.
The rise in Asian LNG spot prices is good news for US exporters.
The big difference between LNG prices in Asia and Henry Hub suggests that there is “very little chance” of seeing US LNG cargo cancellations—As in the summer of 2020 – soon, Warren Patterson, Head of Commodity Strategy at ING, said in the bank’s Energy Outlook 2021.
“Regional gas markets will have better support throughout 2021 and it seems increasingly unlikely that we will see a repeat of cargo cancellations this year,” added Patterson.
By Tsvetana Paraskova for Oilprice.com
More top readings from Oilprice.com: