Prices for liquefied natural gas in Asia rose to their steepest premium over European prices for two years this week as congestion at the Panama Canal drove up the price of shipping U.S. LNG to Asia.
Ships are facing long wait times at the Panama Canal as a severe drought hits reservoirs key to the operation of one of the world’s most important maritime channels. The delays have driven up transport costs for container vessels, ships carrying grains and oil and gas tankers.
That is forcing LNG cargoes from the United States to sail longer alternative routes, for example sailing around the Cape of Good Hope or through the Mediterranean and the Suez Canal to reach Northeast Asia, adding around nine days to the journey.
The spread between the Japan Korea Market (JKM), widely used as an Asian LNG benchmark, and the Title Transfer Facility (TTF), the European gas benchmark, was assessed by S&P at $2.79 per million British thermal units (mmBtu) on Dec. 6, its widest since Dec. 31, 2021.
Only three U.S. LNG cargoes went via Panama towards Northeast Asia/Southeast Asia in November, said Jake Horslen, senior LNG analyst at consultancy Energy Aspects.
“This is very low by historic standards – the average was 12 cargoes per month in 2022 and 18/month in 2021. In 2023 so far, the average was 12/month until November when it dropped sharply to just 3,” he said.
Asian LNG demand has been tepid since early November due to solid inventories, weak industrial demand and generally mild weather.
“We still see Asia-Pacific balances quite comfortable this winter and expect only a minimal Asian call on U.S. spot LNG, but the Panama congestion makes this marginal call a bit more expensive than normal,” Horslen said.
In Europe, record gas storage inventories and high levels of floating LNG storage meant the continent is well prepared for winter.
S&P said that the JKM/NWE – another spread that is commonly used in the market between Asia and Northwest Europe – reached $3.385/mmBtu on Dec. 6.
“It is only just at the cusp of being profitable to ship cargoes from the United States around Cape/Suez to Northeast Asia. Were the JKM/NWE spread to stay over $3.50/mmBtu for a few days, we would likely see cargoes flow to Northeast Asia for late-January and early-February deliveries, rather than to Europe,” S&P said.
Source: Reuters (Reporting by Emily Chow in Singapore and Marwa Rashad in London; Editing by Nick Zieminski and Emelia Sithole-Matarise)