Asian LNG's price premium over U.S. levels is at its 2024 peak.

On August 28,British Pound to US Dollar S&P Global Platts assessed the benchmark price for Northeast Asian liquefied natural gas (JKM) for October at $14.255 per million British thermal units, up 28.3 cents from the previous day. This price increase solidifies Asia’s leading position in the global liquefied natural gas market and further expands the price premium of Asia over the United States.

Specifically, the JKM premium over the U.S. Henry Hub price reached $12.18 per million British thermal units, while the premium over the U.S. Gulf Coast price was $2.625 per million British thermal units. This is the highest premium over Henry Hub since $12.579 per million British thermal units on December 12 of last year.

Currently, the global liquefied natural gas market is facing uncertainty. Market participants expect that competition for internationally shipped liquefied natural gas will become more intense as winter approaches. The European market will increase its demand for liquefied natural gas to meet winter heating and power generation needs due to upcoming maintenance in Norway, Algeria, and Libya, as well as the potential expiration of the Russia-Ukraine transit agreement. If the winter is cold, Europe and Asia will need to compete more fiercely with other regions experiencing demand growth, such as Latin America and Egypt.

Analysts from S&P Global Commodity Insights noted that in the first half of 2024, liquefied natural gas imports in the Asia-Pacific region grew by 10% year-on-year. This growth rate exceeded the increase in supply, leading to tight global markets and higher spot prices. However, this growth may be difficult to sustain into the second half of 2024. Major driving factors such as heatwaves in South Asia and Southeast Asia, inadequate hydropower in China and India, and weak spring spot prices are all temporary. Analysts expect the year-on-year growth rate of liquefied natural gas imports in the Asia-Pacific region to fall to 2% in the second half of 2024.

U.S. liquefied natural gas suppliers have currently paused exports to the Asian market. Data shows that the arbitrage window for exporting liquefied natural gas from the U.S. to Asia and Europe has closed due to the narrowing price difference caused by freight factors. On August 28, the freight cost from the U.S. via the Cape of Good Hope to Northeast Asia and Northwest Europe reduced the price differential for the first half of October to the second half of September from negative 35.5 cents per million British thermal units to negative 37 cents per million British thermal units.

As of August 29, S&P Global data shows that the total volume of U.S. liquefied natural gas exports this month reached 7.21 million tons, with 31% going to Europe, 20% to Asia, and the remaining portion to the Middle East and North Africa, North America, and South America. Despite lower freight costs and closed arbitrage opportunities keeping more U.S. cargoes in the Atlantic Basin, growing Asian demand could spark competition for shipping cargoes in the winter.

S&P Global Platts assessed a discount of $1.476 per million British thermal units for the Northwest European market in October. Despite strong natural gas inventories in Europe and global consumption below previous expectations, the presence of low-cost U.S. contract quantities helps maintain export volumes to Europe and Asia.

Currently, U.S. natural gas prices are at $2.097 per million British thermal units, with no fluctuation. Liquefied natural gas prices have depreciated relative to oil and Henry Hub-related contract prices. Traders have used the flexibility of long-term contracts to increase the number of contracts. Henry Hub-related contracts are typically priced at 115% of their base price plus a constant, raising the Henry Hub price to $5.674 per million British thermal units.

Risk Warning and Disclaimer

The market carries risks, and investment should be cautious. This article does not constitute personal investment advice and has not taken into account individual users' specific investment goals, financial situations, or needs. Users should consider whether any opinions, viewpoints, or conclusions in this article are suitable for their particular circumstances. Investing based on this is at one's own responsibility.

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