Low storage inventories, combined with robust winter demand in both Asia and Europe kept spot prices relatively high in the first quarter 2021.
In the first half of January, Asian and European spot prices spiked to all-time highs as extremely cold weather coincided with tight supply. The Northeast Asian spot price peaked at $30/MBtu by mid-January, opening the widest premiums on record.
European and Asian spot prices retreated in the second half of January as buying focus shifted to the March and April shoulder months. Moreover, temperatures had warmed and nuclear availability improved in Japan, while supplies were creeping up in Asia.
In the last quarter 2020, international spot prices continued their upward momentum to exceed last year’s price levels. Asian spot prices in particular rose impressively to peak at a six-year high of 12$/MBtu at the end of the year.
This recent and unexpected spike in Asia was fuelled by Chinese LNG demand, which is rising amid a colder than average winter, and also healthy weather-driven gas demand in other parts of Northeast Asia. On the supply side, diverse LNG plants’ outages limited available LNG supplies. Tight shipping and exorbitant shipping rates also tightened supplies.
In this context, more and more LNG cargoes were redirected from the Atlantic Basin to Asia. In December, the price spread between the US and Asia reached its highest in two years. The Asian spot price premium versus TTF also peaked to more than 3.5$/MBtu.
In the summer 2020, international spot prices recovered strongly after months of depression. In September, European and Asian spot prices were more than twice the level of June.
This unexpected bullish run was mainly due to a supply cutback as global LNG supply reduced more than previously anticipated. In addition to the US, which has emerged as a swing supplier, many large LNG exporters reduced exports in response to weak demand and gas prices.
Global LNG supply had started to shrink in the second quarter (- 2% yoy) and preliminary estimates indicate that world LNG supply declined even more strongly in the third quarter, down 5% yoy, with the US and Australia leading the way.
On the demand side, Europe, China and India have seen a recovery in gas demand. This demand uptick also helped support spot gas prices. China, where gas demand has rebounded, has been the main buyer supporting spot LNG prices.
The forward prices indicate that this bullish trend will continue. However, strong uncertainties remain as spot prices have recently shown a great volatility and sensitiveness to unexpected events on the LNG market.