The Platts JKM for February delivery LNG deliveries rose 12.5 cents/MMBtu over the week to end at $11.20/MMBtu Friday, as colder weather supported expectations of further Northeast Asian demand and limited supply options.
Northeast Asia started the week with deals heard concluded late last Friday, heard likely in the low-$11s/MMBtu. Thin liquidity due to the year-end holiday season largely crimped trading activity through the week, but market sentiment remained slightly bullish on the back of colder regional weather to spur heating requirements.
Underpinning demand expectations, average December temperature across Japan, South Korea and China remained below seasonal average and below average temperatures recorded in December 2016, according to S&P Global Platts Analytics. Earlier in the week, average temperatures recorded in China were above average and expected to remain that way heading into the New Year.
South Korea and Japan experienced colder weather earlier this week, with Japan recording a cold snap and heavy snow fall in northern and central Japan.
The Japan Meteorological Agency forecasts a 40%-50% chance of colder weather through January, primarily in central and southwestern Japan. The Korea Meteorological Administration expects the weather to be colder for two weeks in January, with one week of higher temperatures and one week of average temperatures.
On the supply side, attention was on Indonesia’s two large sell tenders, the operational status of Wheatstone LNG, Gorgon LNG, and Cove Point LNG facilities.
Indonesia last week launched a 11-cargo tender and a 13-cargo expression of interest exercise, offering volumes from February through to December, with market participants eyeing for winter volumes.
Two vessels have declared Ashburton North as their destination, where Australia’s Wheatstone LNG facility is situated. Market participants have been watching for the facility’s first post-maintenance cargo since late November.
The Asia Vision is declared for arrival on January 3 and the Bishu Maru is declared for arrival on January 8, according to Platts trade flow software cFlow.
Similarly, loadings from Australia’s Gorgon facility are keenly watched to chart the state of the facility’s third production train, which is heard to be undergoing maintenance in December. The resumption of production from both facilities is expected to alleviate supply tightness especially on the prompt should spot volumes be made available.
The Cove Point facility, the next US export facility due to start up, is also closely being watched. The facility took delivery of its first cargo, likely for cool-down operations, earlier this month.
However, market participants are watching for the start of export volumes and the rate of ramp-up to impact global supply in the coming winter months.
Arbitrage differential between Northeast Asia and the UK’s National Balancing Point continued to open up across the week, exceeding $3.70/MMBtu, and spurred Asian market participants to look for potential reload offers to emerge.
However, limited shipping availability could crimp trade, drawing parallels to a similar situation late last year.
Further forward, expectations of the seasonal backwardation into springtime firmed up for February, with the intramonth backwardation structure widening from 5 cents at the start of the week to 10 cents at the end of the week.
The backwardation into March ended the week at $1.20/MMBtu but market participants remained split on whether stronger February prices would steepen that backwardation structure or would stronger restocking demand support a more gradual decline.
Source: PlattsPrevious Next
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