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LNG, Natural Gas
November 15, 2024
By Cindy Yeo, Aly Blakeway, and Si han Long
HIGHLIGHTS
LNG project delays limit new supply growth
Term LNG lifters seek more cargoes during ADP discussions
Spot LNG prices vulnerable to supply-side shocks and unforeseen events
Anticipation of potential increases in 2025 spot LNG prices is shaping buyers' purchasing strategies, as the global LNG market braces for tight conditions amid concerns over supply vulnerabilities and increasing demand.
Spot LNG prices in 2025 remain vulnerable to supply-side shocks and unforeseen events as the global LNG balance is expected to remain tight from delays in LNG liquefaction capacity, according to traders.
"I expect next year to remain tight, so spot prices are likely going to be higher than the average Brent-linked term contract prices," one trader said.
Platts, part of S&P Global Commodity Insights, assessed December JKM -- the LNG benchmark price -- at $13.563/MMBtu on Nov. 14. The slopes of existing term contracts are around 13.5% to Brent prices, positioning spot LNG about $3/MMBtu higher than oil-linked cargoes.
Consequently, LNG term contract lifters are encouraged to secure more cargoes for 2025 delivery during ongoing annual delivery program (ADP) discussions to capture potentially lower prices, according to market sources.
LNG buyers outline the cargo delivery schedule for the upcoming contract year during ADP discussions, which will conclude at the end of November or December for the term contract period of calendar year 2025.
"Quite a few of them are keen to exercise OAQ [Optional Annual Quantity] to get more cargoes as many still believe the market will be tight next year," an LNG supplier said.
Depending on contract terms, buyers can secure an additional 10% of their annual contract quantity. Term contract lifters can also optimize deliveries for winter when spot prices peak. Such buying patterns offer advantages, as deliveries through long-term contracts are generally more reliable due to shorter cargo chains compared to spot transactions.
Initially, LNG traders hoped for a buyer's market with a flood of new supply, but recent news of project delays has tempered these expectations, revealing a tighter-than-anticipated global supply outlook for 2025.
These projects include Golden Pass LNG and Energia Costa Azul LNG in Mexico delayed to 2026 from 2025, pushing traders to expect tighter fundamentals over summer and a rush to secure supply during the European injection season.
"The [European] spread to JKM for 2025 and Q1/Q2 2026 are super narrow due to the Golden Pass delays into Q1-2026," an LNG trader said. "Uncertainty over supply is seeing buyers bid higher across Europe and Asia. Also, long shipping might help the narrowed spread for 2026. Golden Pass delay might affect long shipping."
"Buying activity from European market participants decreased sharply in 2024 year-on-year, but it will grow again next year due to the discontinuation of Russian piped gas," Megan Jenkins, principal research analyst for LNG at Commodity Insights said.
The expiry of the Russia-Ukraine gas transit deal will lead to a deficit of around 15 billion cubic meters per year in Europe, implying additional demand for around 10 to 12 LNG cargoes per month in an already tight market, traders said.
Meanwhile, incremental demand from Asia is expected to moderate in 2025, Jenkins said. "Strong growth in 2024 was fueled in part by exceptional heat waves in the summer months. In 2025 incremental volumes will be lower compared with 2024 under normal weather conditions," Jenkins said.
Demand growth is anticipated to align with new supply given a relatively tighter market. Global LNG demand was forecast to reach 1,736 million cu m/day in Q4 2025, up by 181 million cu m/day year over year, according to Commodity Insights data Nov. 11.
Global disturbances and supply-demand imbalances are key to influencing spot LNG prices. Ongoing conflicts in the Middle East and the Russia-Ukraine situation have supported bullish sentiment, driving spot prices higher in 2024, and post-winter gas inventories will also significantly influence 2025 price projections, according to market sources.
"Prices in 2025 may not change much compared to this year based on current supply and demand sentiment. But geopolitical issues could easily sway prices," an LNG buyer in East Asia said.
European inventory levels at the end of winter will affect competition for LNG cargoes between Europe and Asia. A harsh winter, combined with the expiration of the transit agreement, could deplete European inventories, and intensify competition with Asia, driving spot prices higher. Conversely, a mild winter may yield supply and demand fundamentals similar to 2024.
Additionally, traders think other competitive demand hubs may surface in the first quarter of 2025, with Egypt potentially seeking 15 to 20 LNG cargoes and Brazil seeking around 15 cargoes over the same period.
As of early November, both Asia and Europe exhibit structural bearishness as the global LNG market enters winter with ample inventories. Gas inventories in Europe were 92.10% full, according to the latest Aggregated Gas Storage Inventory data on Nov. 13.
Meanwhile, major Asian LNG importers have largely remained on the sidelines due to high inventories and subdued downstream demand. On Nov. 14, the Japan-Korea Marker forward curve for 2025 was assessed at $13.450/MMBtu, while 2026 and 2027 were assessed at $11.775/MMBtu and $10.150/MMBtu, respectively.