INTERVIEW: Trump win set to have significant global gas market impact, says Axpo Singapore MD

Trump's election as US President "is set to have far-reaching, significant effects on global gas markets," Axpo Singapore Managing Director Sophie Ducoloner told S&P Global Commodity Insights in an interview.

"Trump is expected to fast-track new LNG projects. On the other hand, had the Democrats won, they may not have necessarily rejected these projects but could have implemented more regulatory and environmental processes," Ducoloner said.

On Jan. 26, the US announced a review of LNG export approvals to non-free trade agreement countries and paused the LNG authorization process for those projects.

The industry also awaits signals on what Trump could do next with an eye on the Russia-Ukraine war and potential tariffs on China, Ducoloner said, adding that LNG flows could be impacted if there is a trade war with China and new tariffs are introduced.

China's demand for LNG imports continues to stay strong and is expected to grow over 5%-6% year over year in 2024, some industry sources had told Commodity Insights earlier. In 2023, China imported 71.32 million mt, or 98.4 Bcm, of LNG, up 11.7% year over year, according to customs data.

The priority for the Chinese will still likely be to increase domestic natural gas production, which is quite sizable, and to increase pipeline gas, because it is usually cheaper, Ducoloner said.

However, a US-China trade war could trigger a situation where more regional flows from Asian suppliers as well as LNG cargoes from the Middle East and Africa go into China, while American LNG cargoes go elsewhere, she said, noting that this situation would come with its own complexities.

The Chinese have been "very good at extracting extrinsic value," Ducoloner said. During the peak of the energy crisis, when Europe had a lot of demand for LNG, China was able to reallocate some of its cargoes by increasing its domestic production and using alternative fuels for its own economy, she said.

Europe is in a stable position because storage is full, but it is still a bit early to predict how cold the winter will be, Ducoloner added.

"If the winter is very cold in both Western and Asian countries, we will end up with tighter gas markets," she said.

'Golden age' of gas

"For gas to experience its golden age, it needs to become cheaper," Ducoloner said.

Interestingly, there is a lot of demand from Asian markets such as South Korea, India and Thailand, although LNG is not cheap, Ducoloner said.

"The gas market in Asia is more driven by the European context. The correlation between TTF and JKM is much higher than that of oil and JKM," according to Ducoloner.

"Unless there is a very mild winter and everything operates very smoothly, you will see a bit of contango," she said.

In addition to the weather, the steepness of the contango will depend on geopolitics and potential outages, she said.

"Every single event could push market volatility and for now, we remain cautious," Ducoloner added.

"Asian spot [LNG] prices at around $13/MMBtu may seem okay to buyers now but before the pandemic hit, that price was almost the peak price of winter," she said.

Current LNG prices are still too high to induce a coal-to-gas switch in the electricity grid of many Asian countries, Ducoloner said.

However, if levels reach half that price, then gas starts to become extremely competitive, she said.

The December JKM was assessed at $13.889/MMBtu Nov. 8, up 62 cents/MMBtu from Nov. 7.

Strong buying interest in Asia for the second half of December resulted in a narrower contango between the second half of December and the first half of January. The contango was assessed at 5.3 cents/MMBtu Nov. 8, compared with 12 cents/MMBtu the previous day, according to Commodity Insights data.

Spreading operations

In the Asia Pacific, Axpo has built an energy trading platform and is active in LNG trading, gas trading, LPG trading -- both on paper and physically -- as well as power trading, Ducoloner said.

Axpo is "extremely active" in Japanese and Australian derivatives power trading, she shared.

"It is a learning curve where progressively we are expanding from only exchange to OTC, and certainly one day to physical trading. Those downstream markets really fit the Axpo strategy with regard to providing electricity and risk management solutions," Ducoloner said.

"We are quite asset light, but we are not contract-light, meaning that Axpo is not so much an investor in wind, solar, offshore wind as it is in Europe but is very interested in taking the physical exposure to that and managing the market and credit risk," Ducoloner said.

Axpo is very active in the Power Purchase Agreement, or PPA, market in Europe and is growing that business also in the US.

"We aim to follow the same pattern in Asia once the markets in Asia are more liberalized," Ducoloner said.

"Axpo's strategy is to be involved in the LNG market as a transition fuel but not necessarily to put a footprint of 20 years as of now," she added.