Global gas prices: going to the moon

At Monday’s 14/12/20 session, major global natural gas prices increased significantly.

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The trend observed the last few weeks materialized yesterday with the JKM comfortably trading above $8/MMBtu, the NBP breaking the $6/MMBtu barrier followed closely by TTF, and the HH progressively approaching $3/MMBtu, closing at $2.7/MMBtu.

HH is still setting the floor of the global gas price range. With its gradual recovery, is allowing all other prices to tick at higher levels. But the real driver of this upward trend is the JKM, excellent reflection of the Asian market dynamics.

JKM has experienced a seamless ascent since mid-November.

Although temperatures have not been as cold as expected in Asia, there is still strong seasonal demand. It starts to get interesting when you combine this with several converging factors including:

• Problems in gas supply (Australia, Qatar, Malaysia…)
• An increase in shipping costs (up to 135% higher than usual)
• Congestion in the Panama Canal
• Occasional drops in nuclear production and closures of coal plants (South Korea, Taiwan and Japan)

These combined factors exert upward pressure on European price indicators.

This price increase in Europe shows how the Atlantic basin is emerging as a supplier of last resort, with a market secured if the price is below Asian’s.

Therefore, Europe is no longer receiving same number of LNG loads from the US, which is helping to support prices.

…the real driver of this upward trend is the JKM

In addition, the shortage in cargoes’ availability to make physical deliveries in January is rolling loads to February, ensuring short-term production allocation, at least partially.

In the face of a greater need for gas on the part of Asian countries, a higher volume of inventories would be released which would also help to maintain high prices.

According to this, JKM should remain at high levels over the next few weeks, provided that gas supply to Asia is not restored and that JKM does not reach values high enough to force countries with more price sensitivity to go to the spot market.

Source: Raquel Martínez Farreres