Asian LNG trading activity surges amid price declines, changing market sentiment

Trading activity in the Asia LNG Platts Market on Close assessment process and the broader LNG futures market experienced a notable spike in February, driven by fluctuating price spreads and shifting market sentiment.

Global LNG prices in recent months have been bolstered by strong demand in Europe following the cessation of Russian gas flows on Jan. 1 after the expiry of the five-year Russia-Ukraine gas transit agreement.

To compensate for the lost Russian volumes, Europe has diverted marginal cargoes from Asia. In February, it imported approximately 6.82 million mt of US-sourced LNG, while the Northeast Asian region imported just 600,000 mt, data from S&P Global Commodity Insights showed.

Europe has also increasingly relied on its rapidly depleting gas storage, raising concerns among industry participants. The dwindling storage levels could become a significant issue as competition for spot LNG cargoes between the Pacific and Atlantic basins is expected to intensify during the summer months, when companies typically seek to replenish their inventories.

As of March 1, EU gas storage levels were down 24% year over year to 38.23%, according to the latest Aggregated Gas Storage Inventory data.

Market sentiment turned bearish in mid-February following the European Commission's announcement of plans to promote "more coordinated and flexible" gas storage filling to reduce system drain.

Under EU-mandated regulations, member states must fill their gas storage sites to 90% capacity by Nov. 1, 2025, with interim targets to be met throughout 2025.

This potential relaxation of gas storage targets eased concerns about tightness and intense cargo competition between the Pacific and Atlantic basins.

Bearish sentiment intensified further after reports of a proposed US-Russia peace plan for Ukraine, which emerged after "lengthy" discussions between President Donald Trump and President Vladimir Putin on Feb. 12. Trump described these talks as "highly productive," with both leaders reportedly agreeing to initiate negotiations towards a potential resolution of the conflict in Ukraine.

This subsequently led to a sharp decline in spot global LNG prices, with the Platts JKM and NWE prices falling by 99.6 cents/MMBtu and $2.791/MMBtu from early February, settling at $13.917/MMBtu and $12.925/MMBtu on Feb. 28, respectively.

Consequently, trading activity surged in both the cargo and derivatives markets in Asia as LNG traders sought to mitigate losses and adjust their strategies.

The Platts physical Asia LNG MOC for February reflected this trend, recording a remarkable 50.46% month-over-month increase in total bids, offers, and trades to 325, the second-highest level recorded since 336 in November 2024.

Opening arbitrage

The prolonged closed arbitrage to Asia in recent months spurred strong bidding activity in the Asian market, aiming to backfill spot cargoes that had been diverted to Europe. The physical MOC noted 191 bids for deliveries to Japan, South Korea, Taiwan, China, Thailand, and India, compared to 105 bids reported in January.

However, market sources observed an improvement in the arbitrage economics for US-sourced cargoes to Asia during the week ending Feb. 28.

While global spot LNG prices fell, Asian spot LNG prices remained relatively robust compared to those in Northwest Europe, where prices have experienced a more significant decline.

The price spread between the second-half April JKM and H2 March NWE prices shifted to positive territory, reaching $1.064/MMBtu on Feb. 28 from the negative spread of 80.3 cents/MMBtu on Feb. 3.

This shift prompted traders to divert US-sourced cargoes to Asia to capture higher margins, according to market sources.

"Some US cargoes are beginning to flow to Asia, improving spot supply for deliveries scheduled for the second half of April onwards," a Singapore-based trader said.

The Platts-assessed East-West arbitrage (via the Cape of Good Hope) reached a 13-week high at minus 59.8 cents/MMBtu Feb. 28, a significant improvement from the all-time low of minus $1.961/MMBtu on Jan. 24. Additionally, weak freight rates have made it economically favorable to send US cargoes to Asia rather than Europe, according to market sources.

However, LNG traders noted that the sustainability and strength of an open arbitrage to Asia are significantly influenced by flat price levels in Europe, where gas demand plays a crucial role. Additionally, developments related to supply can swiftly alter market sentiment and price spreads.

"In the current market environment, any supply disruption could lead to a rally in prices very quickly," a Singapore-based trader said.

Other market participants expressed caution regarding recent geopolitical developments.

"I don't think the possibility of Russian gas resuming exports is high. Peace talks could take a very long time to conclude," a source said.

Futures market

JKM futures traded volumes reached unprecedented highs in February as traders sought to take or adjust positions amid the significant price declines.

The traded volumes for JKM monthly futures and JKM balance-month next-day futures on the Intercontinental Exchange hit an all-time high of 121,962 lots, surpassing the previous record of 106,614 lots reported in August 2021.

Notably, volumes for the JKM monthly futures achieved a new daily high of 11,984 lots on Feb. 10, followed by the second-highest daily traded volume of 11,497 lots on Feb. 14.

One LNG broker noted a substantial selloff by traders in response to the bearish news, which shifted initial expectations of Europe procuring high volumes of spot cargoes to meet gas storage targets ahead of the upcoming winter season.

Conversely, traders who were short began to buy back their positions.

"There is a mix of motivations among different traders, but as long as the market sees a big change, it will drive traders to do even more," the broker said.