U.S. Exports Poised for Longer-Term Gains as NatGas Rally Continues — LNG Recap
Winter natural gas prices across the globe have yet to peak as a rally continued Monday in Europe and Asia on colder weather that’s set to boost both heating demand and U.S. exports.
The February Japan Korea Marker (JKM) contract ended 2020 on Thursday at $14.300/MMBtu, while the National Balancing Point (NBP) in the UK climbed to $7.703 and the Dutch Title Transfer facility hit $6.859, “driving the spread between Henry Hub and global prices to its highest level in more than six years,” said EBW Analytics Group.
Even prices in the United States last week climbed on a colder forecast and lower production. Global gas prices continued moving higher on Monday, with NBP hitting a two-year high in Monday trading as chillier weather is forecast for the UK and Northwest Europe through the middle of January. North Asian spot prices are also booming, as Trafigura Group Pte. Ltd. reportedly bid $18.15 for an early February liquefied natural gas (LNG) cargo to South Korea.
“The current large spreads between global prices and Henry Hub should incentivize strong utilizations at U.S. LNG export terminals at least over the next couple of months, although availability of tankers may cause some complications,” said Schneider Electric analyst Christin Redmond, noting the tight global shipping market that has emerged with increasing demand.
Skyrocketing prices in Asia have pulled cargoes away from Europe, where LNG imports dropped 38% between November and December, according to analysts at Tudor, Pickering, Holt & Co. (TPH). Given price premiums in Asia, TPH analysts said they expect European storage to draw down more rapidly, “opening up an opportunity for U.S. LNG utilization to push 90%” through the second and third quarters this year.
Prices are likely feeding one another too, with the rise in JKM lending support for the climb in European benchmarks and vice versa as the global market has become more interconnected in recent years.
“The trend remains bullish for European gas prices with strong support still coming from the high levels of Asia JKM prices and parity prices with coal for power generation,” said Engie EnergyScan analysts on Monday. “Additional gains are therefore likely, but with prices now at technically overbought levels, profit taking could limit their size.”
The current trends are expected to help drive growth in LNG demand as 2021 unfolds, TPH added. After annual demand grew by just 1% in 2020, strong buying in Asia this winter and its impact on the European market have TPH forecasting 8% year/year growth in 2021. As winter fades, European buyers could step in to refill storage, while emerging markets in Brazil, Pakistan and Thailand are poised to boost natural gas demand this year, analysts said.
European storage was at 73.2% of capacity on Saturday, slightly over the five-year average of 71% for the same day, according to NGI data.
In related news last week, Ukraine’s transmission system operator, Ukrtransgaz, said it would make 7 billion cubic meters (Bcm) of free gas storage capacity available annually over the next four years. The European natural gas market found refuge in Ukraine over the summer, where vast storage facilities were utilized by traders, suppliers and utilities in a way that prevented prices from collapsing into negative territory amid a supply glut that nearly filled the rest of the continent’s storage facilities. Ukraine stored 28.3 Bcm of natural gas last year, the highest amount since 2010, Ukrtransgaz parent company Naftogaz said in a post on social media.
Ukraine has marketed more storage capacity to countries farther west as its dependence on Russian supplies has declined. Norway’s Det Norske Veritas Holdings AS has reportedly declined to certify Russia’s Nord Stream 2 natural gas pipeline that would move supplies to Germany. The company had been enlisted to verify the safety of the system, but it won’t do so because of U.S. sanctions against the pipeline, which is nearly complete.
In Asia, South Korea, the world’s third largest LNG importer, plans to increase its LNG-fueled power plant capacity by 43% to 59.1 GW in 2034. Under the country’s recently released long-term Basic Plan for Power Supply, South Korea intends to close 30 coal-fired power plants, or half of those currently in operation.
Elsewhere in the region, China National Offshore Oil Corp., aka CNOOC, has spearheaded the first group purchase of LNG on the Shanghai Petroleum and Natural Gas Exchange. The cargo is set to arrive in April, and buyers would have until the end of September to take delivery of their purchase. The exchange began offering group LNG purchasing last month to enable buying of smaller amounts of the super-chilled fuel.
Croatia has also joined the world’s LNG importers after the floating storage regasification unit LNG Croatia took its first delivery from the Tristar Ruby tanker on New Year’s Day. The vessel arrived from the Cove Point export terminal in Maryland.
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