Asia spot liquefied natural gas rose this week on the back of a colder weather outlook that spurred some demand, lifting prices to their highest levels in six weeks.
The average LNG price for March delivery into Northeast Asia was estimated at $10.10 per million British thermal units (mmBtu), up six per cent from $9.50/mmBtu the previous week. Industry sources said this was the highest level since December 5.
"The weather outlook across Northeast Asia and Europe has turned colder week-on-week, tightening market fundamentals and driving a rebound in spot LNG prices," said Kesher Sumeet, senior LNG analyst at Energy Aspects.
He added that there was a rise in Asian spot tenders this week, with Japan's Kansai and Tohoku Electric seeking one cargo each for February–March delivery. This was ahead of a forecast cold snap in Northeast Asia later this month.
"Weather forecast shows Northeast Asia heating degree days (HDDs) exceeding the 10-year average from January 21, peaking at 26.8 per cent above normal on January 23," he said.
"Combined with the early January cold snap, this could push average January Northeast Asia HDDs above the 10-year benchmark, unlike November and December, when HDDs were below average."
HDDs estimate demand to heat homes and businesses by measuring the number of degrees a day's average temperature is below 65 degrees Fahrenheit, or 18 degrees Celsius.
In Europe, SP Global Energy assessed its daily Northwest Europe LNG Marker (NWM) price benchmark for cargoes delivered in February on an ex-ship (DES) basis at $10.73/mmBtu on January 15. This represented a $0.585/mmBtu discount to the price at the TTF hub, as colder weather returned across Europe and storage withdrawals pushed prices higher over the week.
Spark Commodities assessed the price at $10.694/mmBtu, while Argus assessed the March price at $10.745/mmBtu.
"European delivered prices have risen sharply this week for the first quarter, supported by forecasts for colder weather at the end of the month across Europe," said Martin Senior, head of LNG pricing at Argus.
"The market is eyeing the near full depletion of underground stocks in some northwest European countries because of the colder weather, which has pushed prices a lot higher relative to Asia."
Meanwhile, hedge funds ramped up long buying in TTF futures in response to rapid storage withdrawals and plunging temperatures, said independent gas analyst Seb Kennedy. Commercial operators pivoted into new short positions as suppliers and storage operators adjusted their hedges in a tightening winter gas market.
In LNG freight, Atlantic rates fell for a seventh straight week to $26,250/day, while Pacific rates eased to $41,250/day, said Spark Commodities analyst Qasim Afghan.
The US front-month arbitrage to Northeast Asia via the Cape of Good Hope closed out further this week, strongly pointing to Europe. This was driven by a recent fall in the JKM–TTF spread as the JKM failed to match the recent TTF rally, Afghan added.
(Reporting by Emily Chow; Editing by Tasim Zahid)