Asian spot liquefied natural gas (LNG) prices have slipped below $10 per million British thermal units (mmBtu), marking the first time in nearly eight months that prices have reached this level. This decline in prices can be attributed to ample inventories and mild weather, which have outweighed geopolitical tensions in the Red Sea. Despite the fall in prices, there has been an increase in spot cargo purchases by Asian buyers, as the lower prices have incentivized such transactions. This trend has not been observed in Europe, where prices have not experienced a similar reaction. Samuel Good, head of LNG pricing at commodity pricing agency Argus, stated that Asian buyers have been making purchases in order to slow the price falls and widen the spread between northeast Asian and European delivered LNG markets.
The recent decrease in prices can be attributed to weaker European gas prices, which have been prompted by exceptionally mild weather following a cold snap. Furthermore, despite tensions in the Red Sea, the market has shown minimal reaction thus far, even with more diversions away from the Suez Canal by Qatari and Yamal-linked carriers from last week. The Red Sea route accounts for approximately 12% of the world’s shipping traffic.
Notably, Qatar, the world’s number two LNG exporter, has stopped sending tankers via the Red Sea due to growing regional tension. As a result, at least three tankers have changed courses, opting for the longer Cape of Good Hope route. Two vessels owned by Russia’s Yamal LNG have also diverted away from the Red Sea. The Yemeni Iran-backed Houthi group has been attacking vessels in the Red Sea since November, citing support for Palestinians in their war with Israel.
Additionally, the flow of natural gas to LNG export plants in the United States has reached a one-year low due to an Arctic freeze, causing some energy firms to divert fuel to the domestic market and mechanical issues at Freeport LNG’s facility in Texas. Siamak Adibi, director for gas and LNG supply analytics at FGE, highlights the potential risks associated with this situation if it persists for an extended period. However, weak demand and high storage levels are expected to counterbalance this risk factor for now.
In terms of European prices, S&P Global Commodity Insights assessed the daily North West Europe LNG Marker (NWM) price benchmark for cargoes delivered in March at $8.286/mmBtu on January 18. This represents a $0.749/mmBtu discount to the March gas price at the Dutch TTF hub. Argus and Spark Commodities provided slightly different assessments of the price, with Argus valuing it at $9.613/mmBtu and Spark Commodities at $8.126/mmBtu.
Spot LNG freight rates were estimated at $57,000/day for the Atlantic and $59,000/day for the Pacific on Friday, according to Qasim Afghan, an analyst at Spark Commodities.
In conclusion, Asian spot LNG prices have dipped below $10/mmBtu due to high inventories and mild weather, despite tensions in the Red Sea. The decline in prices has led to increased spot cargo purchases by Asian buyers, helping to slow price falls. In contrast, European prices have experienced a weaker trend influenced by mild weather conditions. The situation in the Red Sea has had minimal impact on the market, even though major exporters like Qatar and Russia have diverted tankers away from the region. Furthermore, decreased natural gas flows to U.S. LNG export plants and mechanical problems at a facility in Texas have contributed to a one-year low in gas flow. However, weak demand and high storage levels are expected to mitigate potential risks in the short term.
