The LNG market-on-close assessment process for December JKM (Oct. 16-Nov. 15) showed increased activity as winter approaches, according to S&P Global Commodity Insights data and market feedback.
The physical MOC saw 17 entities reporting 268 bids, offers, trades, up 27.01% from the November JKM pricing period.
Eight entities, including BP, CNOOC, Mercuria, PetroChina, Shell, Total Energies, Trafigura, and Vitol, reported 19 trades for December shipments to be delivered into the Japan-Korea-Taiwan-China (JKTC) and Thailand regions, totaling approximately 1.235 million mt of LNG cargoes.
Notably, the physical MOC recorded the first-ever trade for a cargo to be delivered to Thailand on Nov. 15, where CNOOC sold into BP's bid for a 3.2-3.4 TBtu cargo for Dec. 20-22 delivery at a flat price of $13.80/MMBtu.
Other market participants who participated in the physical Platts MOC assessment process included ADNOC Trading, BP, DGI, Freepoint Commodities, Glencore, Marubeni, RWE, SEFE, Unipec, and Uniper.
Of all bids, offers, and trades, 45.1% were reported at a fixed price basis, while 41.7% were priced against the Platts JKM index as traders sought to hedge.
The proportion of bids, offers, and trades at fixed price basis reported during the December JKM pricing period rose compared to the November JKM pricing period as traders may look to avoid the risk associated with index-linked pricing, which may waver based on market conditions.
The average cash differentials for the 66 bids, offers, and trades linked to the JKM balance-month next-day contract were reported at minus 12 cents/MMBtu, compared to the almost-flat average cash differential of minus 1 cent/MMBtu during the November JKM pricing period.
Demand remains weak in Asia, JKM edges higher on supply-side risks
The bilateral market saw tepid demand from end-users across the Northeast Asian region amid high inventory levels and weak downstream demand, according to market sources.
The sluggish buying interest led cash differentials against the Platts JKM index to stay in the negative territory, with the December JKM pricing period recording an average cash differential of minus 5.4 cents/MMBtu against the balance month contract, compared to a positive average cash differential recorded during the JKM November pricing period at 3.7 cents/MMBtu.
Chinese importers stayed on the sidelines due to sufficient inventory levels, market sources said. Additionally, there was no buying interest for spot cargoes, even as the JKM fell to $12.875/MMBtu on Nov. 1.
Similarly, buying interest from Japanese and Korean importers was dampened by sufficient stocks and warmer autumn temperatures, which have yet to stimulate heating demand.
Several market sources highlighted that temperature changes will be crucial in influencing the extent of inventory drawdowns across Northeast Asia and altering supply-demand fundamentals.
Meanwhile, Asian spot LNG prices were supported by market nervousness over supply-side risks in Europe.
The Platts JKM, the benchmark price reflecting LNG delivered to Northeast Asia, edged higher to $13.579/MMBtu for the pricing period of December JKM, up 3.5% from the November JKM pricing period.
Russia's Gazprom Export halted gas supplies to Austria's OMV on Nov. 16 as expected, but Russian gas continues to flow via Ukraine to Europe. OMV said Nov. 15 it had been informed by Gazprom Export that Russian gas supplies under its Austrian contract would be suspended from 6 am CET (0500 GMT) on Nov. 16.
"The possibility of halt of Russian supply in the coming months is bothering the traders," a Middle East-based trader said.
Adding onto the expectations of stronger LNG and gas demand was Germany's economy ministry instructing state-owned LNG terminal operator Deutsche Energy Terminal (DET) to reject any cargoes of Russian LNG that may attempt delivery.
Consequently, Northwest European LNG prices flipped to premium territory versus Northeast Asian benchmarks for the first time this year on Nov. 14.
Platts assessed the JKM for December at $13.821/MMBtu and the NWE for December at $14.058/MMBtu Nov. 14.
This placed the JKM at 23.7 cents/MMBtu discount to NWE, the weakest spread between the two LNG markers since Oct. 12, 2023. This is also compared to the $1.615/MMBtu premium JKM held over NWE this time a year earlier.
The reversal of spreads has closed the East-West arbitrage window, leading to an immediate shift of cargoes toward Europe. On November 15, the Platts-assessed East-West arbitrage (via the Cape of Good Hope) was marked at minus $1.276/MMBtu, the lowest level since its launch, indicating that traders would achieve greater margins by sending US-sourced cargoes to Europe.
Derivatives MOC records highest-ever activity
The December JKM pricing period saw record high volumes of bids, offers and trades reported during the derivatives Platts MOC assessment process at 1,885. The previous high was recorded this year during the January JKM pricing period at 1,806 bids, offers and trades.
Activity for the JKM balance-month next-day remained stable, with 634 bids, offers, and trades reported.
A total of 200 trades for December, January, February, and balance-month next-day JKM derivatives of 250,000 MMBtu each were reported by 16 entities, namely BP, Chevron, CMT Energy, Dare, Eni, Engie, Glencore, Jera GM, Marubeni, PetroChina, SEFE, Shell, Total Energies, Trafigura, Unipec, and Vitol.
The futures market at large also recorded greater activity with LNG futures traded volumes cleared on financial exchanges from Oct. 16-Nov. 15 totaling 100,410 lots, up 17.7% from Sept. 16-Oct. 15, according to exchange data.
This is equivalent to approximately 19.31 million mt, or 304 LNG cargoes of 3.4 TBtu each.
