Asian LNG premium versus US hits 2024 highs amid geopolitical risks, supply-side concerns

LNG price premiums in Asia climbed to their highest levels this year versus the US Henry Hub as geopolitical risks and supply-side shocks in the global LNG market bolster prices in the region.

Platts, part of S&P Global Commodity Insights, assessed the JKM – the benchmark price for delivering cargoes into Northeast Asia – for October at $14.255/MMBtu on Aug. 28, up 28.3 cents/MMBtu on the day.

The strength in Asian LNG has kept the region in poll position for LNG prices and supported prices further versus the US.

This put JKM at a $12.18/MMBtu premium versus the US Henry Hub and a $2.625/MMBtu premium versus the FOB US Gulf Coast assessment.

The premium versus Henry Hub was at the highest level seen since $12.579/MMBtu on Dec. 12.

This comes at a time of uncertainty in the global LNG market with traders expecting competition for global waterborne cargoes to intensify in winter.

With upcoming maintenance in Norway, Algeria and Libya – as well as the likely expiry of the Russian-Ukraine transit agreement – Europe will look to LNG to satiate its appetite for heating and power demand over winter.

If a cold winter hits, Europe and Asia will have to engage in fierce competition versus potentially growing demand from other competitive hubs such as Latin America and Egypt.

“LNG imports in the Asia-Pacific region have increased by 10% year-on-year in H1 2024, growing faster than new supply, tightening the global market, and putting upward pressure on spot prices. However, this growth is not expected to continue in H2 2024,” analysts at Commodity Insights said. “Some of the most significant drivers — such as heat waves in south and southeast Asia, low hydro in China and India, and weaker spot prices in the spring — were temporary issues.”

Commodity Insights analysts forecast Asia-Pacific LNG imports in H2 2024 to grow by 2% on the year. Upside risk comes from weather patterns—in both the summer and winter—and unpredictable responses to movements in JKM spot prices.

US swing supplier

“The US arb to Asia is closed for now,” one trader said.

The East-West arbitrage window for LNG cargoes loading from the US is closed. The first-half October JKM to second-half September Northwest Europe spread considering freight rates from the US via the Cape of Good Hope to North Asia and NWE weakened to minus 37 cents/MMBtu on Aug. 28, from minus 35.5 cents/MMBtu, Platts data from Commodity Insights showed.

US LNG exports this month stood at 7.21 million metric tons, or 100 cargoes, as of Aug. 29, according to Commodity Insights.

Of the total, around 31% went to Europe followed by 20% to Asia. The remaining volumes headed to the Middle East and North Africa region, North and South America or were not yet nominated.

Although lower freight rates and a closed arbitrage are allowing more US volumes to stay within the Atlantic basin, stronger demand from Asia could intensify competition for seaborne cargoes over the winter.

Platts assessed the Northwest European marker for October at a $1.476/MMBtu discount to the JKM.

Despite strong European gas inventories and global consumption being relatively lower than previously expected, cheap US contractual volumes have helped to keep exports to both Europe and Asia relatively healthy.

With LNG prices being out of the money versus oil-linked and Henry Hub-linked contracts, traders have shared that they have been utilizing their term-contract flexibility and increasing their term volumes.

Henry Hub contracts are typically priced at 115% of Henry Hub plus a constant. Considering the upper limit of a US LNG Henry Hub linked contract, that would be around 115% of Henry Hub plus $3.50/MMBtu, that would equate to $5.674/MMBtu on Aug. 28, according to Commodity Insights data.