Hot weather in Asia continues to attract LNG cargoes from the Gulf Coast, which has created a lopsided shipping market.
Temperatures are forecast to be above normal in Japan, South Korea and Southeast China over the next 6-10 day period, according to Maxar’s Weather Desk. Hot weather has blanketed parts of Asia and South Asia since the spring.
Global gas prices have risen sharply since that time when the restocking season got underway. Both the Japan-Korea Marker (JKM) and the Dutch Title Transfer Facility (TTF) in Europe traded sideways last week. But the weather, plant outages and geopolitical risks have kept JKM near $13/MMBtu, or about $2 higher than European gas prices.
“Asia remains the preferred destination for U.S. free-on-board LNG cargoes as the arbitrage remains open,” said Rystad Energy analyst Masonori Odaka.
“The arbitrage driving Atlantic volume into Asia is modest but still present, and the resulting conveyor belt taking ships East is making the summer far more interesting than many would have expected,” added analysts at shipbroker Fearnleys AS.
While the global liquefied natural gas tanker fleet can handle the regional imbalance and current production levels, “trying to find certain vessels for specific dates out of the U.S. Gulf is now proving very difficult,” Fearnleys said, noting that rates have spiked sharply.
Vessel rates in the Atlantic are above $80,000/day, while they're near just $50,000/day in the Pacific Basin.
Intense heat has kept Asian spot buying activity elevated. Bangladesh, India, Japan and Thailand all closed tenders for about six cargoes over the last week for delivery this month and next, according to Kpler.
Meanwhile, Egyptian Natural Gas Holding Co. awarded a tender last week for 17 cargoes in July and August to help meet domestic demand during the heatwave. Kpler data shows the tenders were awarded at premiums of $1.00-$1.90 above TTF prices.
In Europe, TTF fell 3% on Monday to finish near $10.50. Temperatures in the central and western part of the continent are expected to trend cooler over the next 6-10 day period before turning hotter over the 11-15 day stretch, according to Maxar.
European storage inventories are also comfortable at 77% of capacity, compared to the five year average of about 66%.
Norwegian exports to the rest of the continent have rebounded from recent outages as well. Nominations were near capacity on Monday at roughly 11.8 Bcf.
Asian and European gas prices were also unfazed by the first hurricane of the Atlantic season, which for now doesn’t appear to be threatening LNG exports along the Gulf Coast.
Hurricane Beryl reached hurricane status on Saturday, according to the National Hurricane Center.
The U.S. government forecaster said Beryl was expected to remain a powerful storm as it moved across the Caribbean, but added “it is too soon to discuss what could happen with Beryl if it makes it” into the Gulf of Mexico.
Private forecasters, however, said if that were to happen, Beryl’s most likely path could be to Mexico. A strike of the Lower 48 was not ruled out.
Even still, the threat of the hurricane cutting into U.S. LNG demand, along with a cooler shift in weather models over the weekend, found Henry Hub declining as the week got underway. Henry Hub prompt futures fell 12% last week, while NGI’s Weekly Spot Gas National Avg. for the June 24-27 period fell 7.0 cents to $2.040 as domestic supplies crept upward.
For now, LNG demand is strong. Wood Mackenzie data showed flows to export plants at 12.5 Bcf on Monday, up from an average of 12 Bcf/d over the past week. A train at Freeport LNG on the upper Texas coast tripped over the weekend, but was restarted. Wood Mackenzie data showed nominations near normal levels at the plant on Monday.
In other news, Saudi Arabian Oil Co., better known as Aramco, awarded $25 billion of construction contracts to develop its Jafurah natural gas project. The money was awarded to boost production from the development and expand the system to transport volumes to domestic end-users.
The company is expanding its domestic and global natural gas operations as demand rises.
Elsewhere, Abaxx Technologies Inc. launched its commodities exchange on Friday. Abaxx is listing physically settled futures contracts for the three major LNG markets in Northwest Europe, North Asia and the Gulf Coast.
Its Gulf of Mexico contract for October delivery traded after launch on Friday and settled at $9.09. It closed at $9.12 on Monday.
In the United States, New Fortress Energy Inc. (NFE) said it has reached a deal to sell its small-scale liquefaction facility in Miami to an undisclosed infrastructure fund. The Miami facility was an early asset for NFE. The facility can produce 8,300 MMBtu/day of LNG and has a license to export up to 60,000 metric tons/year of the super-chilled fuel.
