Asian/European Competition for LNG Supplies at Balancing Point

JKM is trading narrowly above TTF for Feb23 – the first time since Russia’s invasion of Ukraine. It generally remains equally profitable for US suppliers to send LNG to either Asia or Europe but a development in a premium in either direction could develop on a number of volatile factors.

• TTF prices fell sharply in recent days amidst unseasonably mild weather, high storage levels (standing 10 bcm above their 5y average) and a continued strong LNG inflow.
• In contrast, the northeast Asian market, and especially northeast China, is facing a particularly harsh cold spell, while Central Asian pipeline flows are down by ~50 mcm/d.
• The market also has its eyes on any developments to the shut down in production at Prelude’s LNG facility in Australia while an investigation over a fire takes place. It is a key supplier to the Asian market – especially as winter demand soars.
• Asia has limited storage capacity making it more sensitive to supply-demand shocks during the winter season.
• Despite the high gas market volatility this year, TTF and JKM remained closely correlated (at 0.95), reflecting the strong competition between the two regions for LNG.
• This is another key reason to watch for increased Chinese demand which could strongly tip the premium in Asia’s favour to the detriment of European supply – its lifeline to survive without Russian piped flows.