Prices of spot liquefied natural gas for November delivery to Asia averaged $6.700 per million British thermal units, according to latest Platts Japan/Korea Marker data for month-ahead delivery.
The marker fell 11.1% month over month, despite the fact that the market was moving into its traditionally stronger peak winter demand season. At $6.700/MMBtu, the JKM was 53.5% below prices seen for the same delivery month in 2014, marking the largest year over year change since April 2015.
The JKM had begun the assessment period at $7.00/MMBtu, before trending down steadily to reach $6.50/MMBtu by the beginning of October, as a slew of prompt supply tenders, mostly originating from projects in the Asia Pacific Basin, exacerbated extremely limited demand among end buyers in Northeast Asia.
Some 13 cargoes for prompt October and November delivery were offered out through various tenders during the assessment period. Meanwhile, buyers in South Korea, Taiwan and Japan continued to show no interest for cargoes. Indeed, several Japanese buyers were heard to be grappling with high inventories following lower-than-anticipated power demand during the summer and were reportedly trying to cooperate on deliveries where possible.
Similar sentiments were echoed in China, where buyer CNOOC had recently issued its first supply tender for two cargoes loading in Australia, marking a significant shift in the fundamental supply and demand balance of the LNG spot industry.
Interest continued to emerge from India and the Middle East, however, where end buyers collectively tendered or launched an expression of interest for an estimated 12 cargoes during the October/November delivery period. However, not all expressions were awarded.
“Tender awards for prompt cargoes, particularly from buyers in Egypt and Pakistan, appeared to rejuvenate demand among portfolio suppliers and traders either looking to optimize or short cover positions,” said Platts’ Stephanie Wilson. “There was a late surge in buying interest for November deliveries at the end of the trading month. In response, Platts JKM values rebounded to reach $6.70/MMBtu by the end of the assessment period, with some demand from Indian importers still apparent and awards for November deliveries still pending from Pakistan.”
At an average of 29.1 cents during the trading period, the price spread between the Platts JKM and U.K. onshore National Balancing Point gas futures has been the narrowest seen since April 2015. This is keeping the arbitrage trade between the two basins firmly closed, said Wilson.
With prices of term contract Japan Customs Cleared crude oil in Japan estimated at approximately $9-to $10 dollars per MMBtu, calculated at a $14 to 14.85% indexation plus $1.00-1.25/MMBtu alpha, the possibility to secure November spot cargoes from Asia for delivery into term positions in Japan was once again viable.
“This encouraged price optimization among sellers,” Wilson said.
The price of thermal coal, a possible competing fuel, decreased 23.0% year over year, while fuel oil was down 56.1% from the same month in 2014.