Commodity Tracker: 5 charts to watch this week

Global LNG trends kick off this week's selection of energy and raw material trends, as the dust settles on January's unprecedented price spike. Plus, EU carbon prices hit a new record, Algeria looks to shore up its hydrocarbons sector with new legislation, and tighter corn supply poses a quandary for livestock farmers.

1. PipeChina auction results highlight LNG demand upside...

What's happening? PipeChina approved 54 third-party shippers to import LNG through the national infrastructure company's 8.4 Bcm of spare LNG regasification capacity through Dec 2021. All of the spare capacity is located at terminals servicing Southern Chinese demand centers, which are expected to see domestic gas prices of ~$8.00/MMBtu in S-21, well above expectations for JKM, highlighting the potential for an uptick in spot LNG procurement.

What's next? Strong interest in available capacity could foreshadow broader LNG demand growth as government efforts to increase gas penetration across Southern China intensify. Historically, government efforts to increase gas penetration in Northern China corresponded with a strong uplift in utilization of Northern China LNG terminal capacity. With government policy on gas now shifting focus to Southern China, this recent auction could signal the beginning of a similar trend, supporting overall Chinese LNG demand. S&P Global Platts Analytics anticipates Chinese LNG demand growth of 12% through 2025, reaching 114 Bcm, a growth trend highly dependent on success in broader gas penetration policies outside of Northern China.

2. ...while Asia premium slide portends more US LNG to Europe in short term

What's happening? Surging US Gulf Coast LNG netbacks in January have reversed at the start of February, driven by moderating prices and demand. Spreads for March-delivered cargoes have dropped by roughly $1/MMBtu from both the Asian and European markets.

What's next? Asia LNG storage filling will likely keep some US LNG cargoes pointed towards Asia this spring, though the forward European netback is now strongly pointed to a premium in late-March and April. More US cargoes remaining in the Atlantic Basin this spring would be a turnabout from January, when imports of LNG into Europe's liquid trading hubs slumped to their lowest level in nearly three years.

3. EU carbon continues bullish streak amid tight supply, cold weather

What's happening? EU carbon emissions allowance prices surged to an all-time high of Eur38.25/mt Feb. 4, with a raft of bullish factors driving the gains. News headlines suggesting some UK hedge funds are expecting much higher prices appeared to provide the latest trigger for prices to jump higher. Colder-than-average temperatures across much of Europe have also supported the European energy complex, while delayed annual free allocation of carbon allowances to Europe's industrial sectors in 2021 means supply is temporarily tighter than expected.

What's next? The market will be watching closely to see if the latest push higher can be sustained. The delayed free allocation of allowances is now due in Q2, and could temper the recent gains. However, the background is still bullish: the EU is taking a tough line on CO2 emissions in a regulatory push to tighten the market to help deliver net-zero emissions by 2050. Separately, Platts CORSIA-eligible carbon offset credit (CEC) prices rose to an all-time high of $1.45/mt Feb. 4 amid healthy demand and a flurry of tenders and requests.

4. Can Algeria hydrocarbon law help revive flagging production?

What's happening? Investment in Algeria's upstream oil and gas sector has been tailing off since the mid-2000s, as the country has struggled to hit on regulatory terms that would attract developers. The country's oil production has declined form a peak of 1.4 million b/d in 2008 to around 1 million b/d in early 2020, before the drastic quotas agreed by OPEC+. Gas and LNG exports have also been falling, with 2020 LNG exports down nearly 9% year on year.

What's next? A new hydrocarbon law is in the process of being adopted, with sources indicating the implementing texts will all be published by the end of March. This could kick-start a new wave of upstream developments, particularly as nine preliminary agreements with international majors were signed by state-owned Sonatrach in 2020, with a view to progress them as concrete projects once the law is implemented. Most recently, Sonatrach signed an MOU for new opportunities in the Berkine Basin with Occidental Petroleum, Eni and Total.

5. Feed industry watchful as wheat-corn spread shrinks

What's happening? The difference between the wheat and corn future prices on the Chicago Board of Trade are narrowing and fell below $1 on Feb. 1 for the first since September 2019. Wheat becomes an attractive feed ingredient for the cattle, swine, and poultry industries when the price difference between wheat and corn shrinks. This comes at a time when global wheat ending stocks are expected to rise 4.4% on the year to 313.2 million mt in 2020-21, while corn stocks are expected to fall 6.3% year-on-year to 283.8 million mt, the US Department of Agriculture says. Meanwhile, weather issues this season have created uncertainty around corn crops in South America, a prolific corn-exporting region.

What's next? Substituting corn feed with wheat is complex. Livestock producers consider several factors including nutrition requirements before increasing the proportion of wheat in the overall feed ratio. However, with China stepping up corn purchases(opens in a new tab) and surging corn prices looming large over livestock and poultry industries' margins, producers' interest in feed alternatives is expected to rise. If the current price trend for wheat and corn holds in the coming months, livestock producers are more likely to move towards including wheat in the feed mixture.

Reporting and analysis by Harry Weber, Mugunthan Kesavan, Frank Watson, Sze Hwei Yeo, Stuart Elliott, Herman Wang, Illies Sahar