JKM-NWE LNG derivative spreads flip positive for 2023

Asian LNG spreads to Northwest Europe in 2023 flipped to a positive Jan. 5, as higher gas storage levels this winter are likely to reduce summer restocking demand.

Previously, the monthly spreads between June and October had been negative, with Northwest Europe the premium market. However, the Asian JKM benchmark is now at a premium to Northwest European LNG for every remaining month in 2023.

The June JKM-NWE spread climbed to a premium of 2 cents/MMBtu, up from a 44.7 cents/MMBtu discount. July saw the largest net change, a rise of 78.8 cents/MMBtu to a 38 cents/MMBtu premium.

The JKM-NWE Summer 23 derivative spread was assessed at 27.1 cents/MMBtu Jan. 5, up from a 0.5 cent/MMBtu discount Jan. 4. This is the first time the spread has been positive since the 45 cents/MMBtu seen Dec. 20.

Northwest Europe's prices relative to JKM have weakened since late December, as higher-than-expected storage levels have pushed down gas demand in Europe.

Storage levels across the EU currently stand at 83.35% full, according to the most recent data from the Aggregated Gas Storage Inventory.

Sources now expect Europe to emerge from winter with storage levels at around 50% of capacity.

The higher end of winter storage levels means that sources now see the absence of Russian flows during inventory fill-season as less of an issue than had been previously expected, which will in turn ease pressure on LNG demand later in the year.

Meanwhile, the easing of coronavirus restrictions in China has created uncertainty in Asia, as the country's reopening could lead to some rebounding in local demand for gas in 2023, offering potential further bullish sentiment for JKM-NWE spreads. However, this continues to remain a large question mark for the region's demand.