Bearish LNG, gas fundamentals may cushion Red Sea vessel seizure impact

Despite brewing tensions in the Middle East adding to the heightened bullish sentiment from lower temperature forecasts, LNG and gas sources suggest that the current bearish factors could help soften any blow to prices.

The seizure of a cargo ship off Yemen by the Houthis has seen the return of war premiums for oil and shipping in the region, however, sentiment still remains relatively calm for the gas and LNG markets.

While some market participants pointed to limited impact as the incident remains isolated, they still suggested that gas and LNG prices may spike as the lower temperatures slowly move into Europe this month and into December.

However, other sources added that this sudden incident may contribute to price increases and expressed their concern around the ship seizure in the Red Sea.

An LNG source said the seizure of the ship was one of many reasons that prices rose.

"Shipping is a key issue at the moment, and any signs of increasing threats create risks to upside," the LNG source said. "... Not really bullish. ... More supportive."

Platts, part of S&P Global Commodity Insights, assessed the TTF December front-month contract at Eur44.951/MWh Nov. 17.

The ICE TTF's front-month December contract traded at an intraday high of Eur47.600/MWh as of 0736GMT.

Bears vs. bulls

Although LNG and gas markets saw an intraday rise, sources suggested that the initial price reaction to this development may have been limited. Sources said LNG freight rates could be impacted and lead to ships avoiding the Suez Canal.

Freight rates have been elevated recently on the back of continued delays at Panama Canal. Many cargoes have been using the Suez Canal as an alternative route for their LNG tons. This development could further weigh on the shipping market, especially given the current lack of available spot vessels globally.

The JKM-NWE LNG spread has reached the lowest level since the beginning of September as a result of the wide premium being seen in Asia due to the Panama Canal constraints. Platts assessed NWE LNG at a $3.485/MMBtu discount to JKM.

One gas source said participants may be worried about transportation in the Red Sea and the availability of cargoes. The source added that some market players were beginning to worry about cargo deliveries through the Red Sea to Europe and Asia.

The market suggests that the news is still relatively fresh and that participants are waiting to gauge the potential impacts. This comes at a time when bullish sentiment is creeping back into the market amid the long-anticipated return of colder temperature forecasts.

Supply ample, but risks remain

Although European gas storages remain well-stocked, and supply continues to flood the market from the US, Europe and Asia could be at risk from price volatility should a cold snap ensue and deplete inventories rapidly.

The kick-start of the typical seasonal demand from the heating sector could amplify price competition between Europe and Asia to attract in any additional cargoes from the US. This, coupled with ongoing global risks, could spark volatility in the market. The news around the seizure in the Red Sea has LNG traders awaiting any potential spikes.

Platts assessed the DES Northwest Europe Marker for January at $13.815/MMBtu Nov. 17, down 23.1 cents/MMBtu on the day. Northwest European prices saw a 7.8 cents/MMBtu rise week on week.

Atlantic LNG prices rose in Platts intraday assessment to $14.212/MMBtu from $13.815/MMBtu Nov. 20.

Although LNG prices have been fluctuating, the bearish fundamentals should help to cushion any significant price increase. One source argued that the strong bearish sentiment could help to curtail any price reaction from the rising tensions in the Middle East. Also, sources said prices had begun to cool later in the day as the market considered the ample storage supply and relatively slow demand growth.