Platts JKM derivatives poised for weaker summer prices, steeper contango

Derivatives of Platts JKM, the benchmark price reflecting LNG delivered to Northeast Asia, are likely to soften further going ahead -- widening the contango between the summer 2024 and winter 2025 values --, as Asia prepares to exit a mild winter with healthy inventories, according to trade participants.

The JKM derivatives for the first half of 2024 have consistently been priced below the $10/MMBtu level throughout January, S&P Global Commodity Insights data showed.

The summer 2024 strip in the derivatives market breached the $9/MMBtu level on Jan. 18, after staying above $15/MMBtu for most of 2023, data from S&P Global showed.

Platts, part of S&P Global, assessed the summer 2024 strip at $9.873/MMBtu Jan. 30.

Mirroring the weak trend, the WIM derivatives market also eased. The spread between the JKM and WIM derivatives for the prompt months has narrowed to a mere 20 cents/MMBtu.

Despite this, a Singapore-based trader suggested the market is yet to hit rock bottom. "Supply is high everywhere and demand is low. The only potential spike now would be a supply disruption."

Widening spread

The expectations of softening summer prices(opens in a new tab) have widened the spread between the summer 2024 and winter 2025 values, with the spread reaching its highest level at $2.426/MMBtu on Jan. 26.

The Q2 2024 and Q3 2024 strips were assessed at $9.497/MMBtu and $10.250/MMBtu, respectively on Jan. 30, S&P Global data showed.

The bearish outlook will likely prevail until new LNG capacity comes online from 2025 onwards, according to market participants.

A contango structure between the Q2 2024 and Q3 2024 strips has been consistently observed throughout January on seasonal demand shifts, with the potential emergence of restocking activity for the winter season, participants reckoned.

The LNG market faces demand lull during summers, as consumption typically falls compared to the peak heating demand season from December to January.

Meanwhile, end-users are likely to enter the summer season this year with healthy inventory despite cold snaps (opens in a new tab)in Northeast Asia in the past two months.

"We originally thought demand may come up in summer this year but now we expect a backwardation or flat structure until September," an Asian trader said.

Another trader suggested that spot JKM prices in Asia may face downward pressure in the summer season amid alternative renewable energy sources.

Platts JKM was assessed at $9.156/MMBtu on Jan. 30, S&P Global data showed.

However, a potential black swan event may disrupt the supply-demand balance in Asia, a market source noted.

"It is still difficult to tell how summer will turn out as any black swan event may greatly affect market fundamentals, but with current indications, market is weak now," he said.

Higher LNG supply may comfort prices

While supplies have been stretched in the last two years amid the ongoing Russia-Ukraine war,(opens in a new tab) an uptick in the new LNG capacity will help ease tightness globally, traders said.

The global supply of LNG is forecast to rise 34.86 million mt in 2025 and 41.30 million mt in 2026, according to S&P Global data. This compares to the expectations of 9.40 million mt in LNG stocks for 2024.

The calendar 2025 price in the JKM derivatives market have been on a downtrend, with the values reaching below the $15/MMBtu level from November 2023. The calendar 2025 price was assessed at $11.325/MMBtu Jan. 30, S&P Global data showed.

While the calendar 2024 prices have been outperforming those for 2025, the LNG market bearishness has further softened values for 2024 and flipped the inter-annual market structure into backwardation.

Meanwhile, the calendar 2026 price remained largely stable, hovering around the $10-$12/MMBtu range since August 2023. The calendar 2026 price was assessed at $10.45/MMBtu Jan. 30, S&P Global data showed.

The LNG industry is now monitoring the Biden administration's decision to "pause" issuing key LNG export permits, which may stall some proposed projects and hinder long-term contracts.