Weaker arbitrage opportunities for LNG emerged recently, due to a narrowed price spread between the Asian and European markets, prompting some cargoes originally destined for Asia to be diverted towards Europe.
Platts, part of S&P Global Commodity Insights, assessed the DES Northwest European marker for November at $12.851 per MMBtu on 7th October, down around 0.12% on the day, while JKM was assessed at $13.225 per MMBtu.
The NEW/JKM spread tightened to 37.4 cents per MMBtu, significantly narrower than the $1.76 per MMBtu spread observed on the same day in 2023.
In the swaps market, the JKM/NWE derivative spread for the front month stood at 55 cents per MMBtu, the lowest level since 6th March, when it was assessed at 52 cents per MMBtu.
In the paper market, the JKM/TTF spread for December, 2024; January, 2025 and February, 2025 remained below $1 per MMBtu for several trading days, indicating a lack of arbitrage opportunities to Asia for the forthcoming winter.
Middle East tensions
Market sources said the tightening JKM/TTF spread was linked to tensions in the Middle East, which have kept European gas prices elevated, despite no supply disruptions thus far.
The LNGC ‘BW Brussels’ turned north off northeast Brazil after loading at Freeport, Texas, rather than head for Asia via the Cape of Good Hope, data from S&P Global Commodities at Sea showed on 8th October.
Another LNGC, ‘LNG Endeavour’, originally bound for the JKM market, was also heading towards Europe. Similar diversions were noted earlier this month with two other vessels, ‘Marvel Dove’ and ‘Vivit Arabia LNG’.
Opportunities to divert US-sourced cargoes towards the Pacific basin weakened further. Platts assessed LNG East/West arbitrage (via the Cape of Good Hope) at minus 83 cents per MMBtu on 4th October, down 3.7 cents per MMBtu on the day and 16 cents per MMBtu lower week-on-week.
"This is a shoulder period for Asia," an Atlantic-based LNG trader told Platts.
"[There is] less pressure from Asia really -- they're not in a rush to buy... There are buyers but they are not rushing to buy cargoes, and after Golden week, China can buy but they are not racing to do it," an LNG trader said. "Asian buyers are not really buying, and there aren't many cargoes in Europe, so they're paying up to attract them."
Another trader said: "Right now it's impossible to move a cargo from the Atlantic to the Pacific."
The escalation of tensions in the Middle East, particularly fears surrounding potential disruptions to Iranian oil and Israeli gas supplies, significantly influenced European market sentiment.
Although Israeli gas infrastructure, such as Chevron's Tamar and Leviathan fields, resumed production after brief shutdowns, the market remained cautious about further escalations in the region.
These developments had a spillover effect on European gas and LNG markets, contributing to the price increases.
Europe was also competing with Egypt, Bulgaria and Latin America for cargoes, thereby encouraging players to keep their cargoes in the Atlantic basin.
Adding to the bullish outlook for Europe were colder-than-expected temperatures, which triggered the region's first net gas withdrawals since April, a full month earlier than last year.
LNG volumes on the water reached a 10-month high of 19.6 mill tonnes on 3rd October, according to Commodity Insights data.
The average fleet speed thus far in October decreased slightly from 11.87 to 11.78 nautical miles per hour, which could imply that more cargoes were floating or sailing at lower speeds.
