JKM's drop below $15/MMBtu to perk up Asian LNG demand

Asian spot LNG buying is set to increase in the coming weeks as buyers expect prices to drop further after the Platts JKM slid below the $15/MMBtu mark recently -- the lowest level since August 2021.

Platts, part of S&P Global Commodity Insights, assessed the JKM price benchmark for April at $14.499/MMBtu Feb. 17 and at $14.642/MMBtu Feb. 20.

According to some market sources, JKM prices could fall further to $10-$13/MMBtu on ample inventories and improving supplies with the imminent restart of Freeport LNG in the US.

"I think buyers would agree on this [further drop in prices], not sure about sellers," an industry source said.

Buyers need to avail this window when spot LNG prices are weak, before prices surge again, another industry source said.

"Although the JKM is falling, there is a possibility that the JKM might rebound from summer onward, as the competition between Asia and Europe will get fierce," he said.

Spot purchasing interest has already improved in South Asia, with several major Indian importers issuing buy tenders for the prompt.

GSPC was seeking an H2 March or H1 April DES Dahej cargo through a buy tender that closed Feb. 20.

GAIL also issued a buy tender, to procure three cargoes with delivery windows of March 16-28, April 1-18, and May 1-10. The tender closes Feb. 21.

According to sources, Thailand's PTT awarded its tender that closed Feb. 17 to a trading house and portfolio player for three cargoes between $14.50-$15/MMBtu. PTT's latest tenders have attracted as many as 40 offers indicating ample supply on the market, and buyers continue to see a strong response for their tenders.

In addition, Japan's Kansai Electric Power Company bought 4-6 cargoes for August 2023 to March 2024. The cargoes were purchased at premiums of around 20 cents/MMBtu to JKM, on a DES JKTC basis, from portfolio players, trading sources said.

Kansai's buying appetite surprised the market as traders thought Japanese power utilities including Kansai had sufficient stocks.

According to Kansai, its No. 4 Takahama nuclear power plant with 870 MW was unexpectedly shut on Jan. 30.

While the shutdown created an unexpected demand for LNG from the power utility, market sources said Kansai is basically long on LNG this year and seems to be taking advantage of the weak market.

They can sell LNG cargoes later, if they don't consume themselves, an end-user source said.

For Bangladesh's latest tender, six offers were received. This indicates strong selling interest despite tough credit conditions in the country. The tender that closed Feb. 12 was won by JERA, a major Japanese LNG player, signaling healthy inventories in North Asia.

However, there is no massive wave of sell tenders on the market, and suppliers are still holding back from fully opening the floodgates of supply.

There is some hesitation due to the overall uncertainly around global trade flows and supply contraction from some terminal projects like Darwin LNG. If a wave of sell tenders were to materialize, it could swing prices into single digits very quickly, sources said.

"JKM prices dropping below $15/MMBtu is likely to draw out some interest among Asian buyers for spot cargoes," James Taverner, research and analysis senior director, Gas Power & Climate Solutions, at S&P Global, said.

However, underlying demand is still weak in Northeast Asia with high storage levels and a sluggish return to growth, Taverner said.

Lower prices will likely be needed to stimulate significant additional buying activity, he added.

Chinese buyers swinging into action

China was relegated to the position of the world's second largest LNG importer in 2022, from being the top global importer in 2021.

In 2022, China's imports plummeted 19.5% on the year to 63.4 million mt of LNG in 2022, according to the country's General Administration of Customs.

The country's 2023 LNG imports are set to strengthen on easing pandemic-related restrictions and expectations of increasing industrial and power consumption, sources said.

In February, China's CNOOC awarded an initial tranche of LNG buy tenders for 10 cargoes while still being in talks for buying 20 more LNG cargoes.

Some buyers in China, however, like the rest of Asia, are waiting on the sidelines, anticipating a further price drop before clinching spot buys.

"Now that prices have fallen below $15/MMBtu, there is some expectation among Chinese buyers that prices could move lower, so many are waiting to see before any outright buying," an importer based in Beijing said.

"If JKM falls to $10-$12/MMBtu, buying interest could emerge ... however, at current prices of $14-$15/MMBtu, there is some price risk by the time LNG reaches end-users, as there is some hesitation over trucked LNG prices falling, and hence people are just monitoring the price direction now," another importer said.

Trucked LNG prices for coastal terminals and inland plants averaged Yuan 6,479/mt ($943.63/mt) on Feb. 17, up 2% from Feb. 9, data from the Shanghai Petroleum and Natural Gas Exchange showed.

Domestic pipeline gas prices was another factor that would impact spot LNG buys, an end-user said.

"If prices of domestic pipeline gas continue to increase, there might be some willingness to import LNG since prices are on a downtrend," an end-user said.

Should JKM fall further, some "second-tier" buyers could come out to buy cargoes as JKM is quite close to pipeline gas prices, which are currently around $13-$14/MMBtu, a second end-user said.