Trend of Natural Gas and LNG Prices
- Although assessed spot LNG prices (JKM) for November delivery, which was traded as the front-month transaction from 16 September to 15 October, stayed in the high of USD 5s, higher than that for October delivery one month earlier, it was still at the lowest level during the past ten years at this time of the year, going up slightly with more vibrant trading activities toward the middle of October for expected higher gas demand in winter. Likewise, JKM for December delivery, the new front month from 16 October, has been traded higher than that for November delivery, with the price on 16 October 14% higher than the preceding day's front-month price for November delivery. Japan's average LNG import price in August 2019 was USD 10.13 (USD 0.58 higher than in July), while the METI spot LNG price was USD 5.5 in August 2019 (USD 0.7 higher than July) and was USD4.9 in September 2019 (USD 0.6 lower than in August).
- The Henry Hub price at the end of September stood at USD 2.33, declining further from the same time one year earlier responding to the sustaining growth of natural gas production in the United States. Meanwhile the NBP price was USD 5.31 equivalent, around half of the price one year earlier, reflecting continuous inflow of LNG and unseasonably high inventory in natural gas storage. However, uncertain prospects of the gas transit talks between Russia and Ukraine and likely diminishing Groningen production in the Netherlands resulted in an increase by USD 1.65 from the end of the previous month.
- Japan's average LNG import price of USD 10.13 in August 2019 was higher than USD 8.5 - 9.3 in other LNG markets in Northeast Asia and 2.2 times as high as the assessed spot LNG price in the region (JKM) for delivery in August (assessed between mid-June and mid-July) at USD 4.55. It was the largest gap ever between the two.
Mid- to long-term trend
- During the five-year period from 2014 to 2019, Japan's average LNG import price went down from USD 16s per million Btu, largely due to the downing trend of crude oil prices, to which long-term contract LNG prices are pegged. The average price stayed below USD 10 from April to July 2019.
- JKM declined from around USD 10 per million Btu for January in 2019 delivery to the middle of USD 4s for July - October 2019 delivery, a historically remarkable decline to also a historically low level. JKM, which in recent years moved in the range between European spot gas prices as the lower end and crude oil equivalent as the higher end, has stayed near the lower end so far in 2019.
- Japan's average LNG import price as 1.6 - 2 times as expensive as JKM on average for delivery in each month in the second quarter of the year (assessed between one-and-half and half-a-month prior to delivery), representing the largest relative gap between the two since 2011. This seems to be due to ongoing massive LNG supply capacity expansions, and weaker appetite for LNG in Asia, particularly from the traditional three LNG markets in Northeast Asia - Japan, Korea and Chinese Taipei. Even in China, growth of LNG import has been moderated from 40% in 2017 and 2018 to 19% in the first half of 2019, on annualised basis.
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Henry Hub price: NYMEX Futures and Options, CME Group
NBP price: ICE Futures Europe, Intercontinental Exchange
JKM: LNG Japan/Korea Marker© 2019 by S&P Global Platts, a division of S&P Global Inc.
METI spot price: Spot LNG Price Statistics, Ministry of Economy, Trade and Industry
Japan’s average LNG import price: Trade Statistics of Japan
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Trend of Natural Gas and LNG Inventories
- Japan's LNG inventory as of the end of June 2019 stood at 4.11 million tonnes, a decrease by 8.5% from the preceding month and 1.6% from one year earlier. Due to an increase of LNG consumption for city-gas supply in June 2019 by 3.5% from the preceding month, LNG inventory volumes for city-gas supply decreased by 8.8% from the preceding month and 8.7% from June 2018. While LNG inventory volumes for gas-fired power generation increased by 7.5% in June 2019 from the preceding month resulting in an 8.2% month-on-month decrease of LNG inventory for power generation, the inventory, in fact, increased year-on-year by 6.8%.
- Japan's LNG inventory levels have been generally high in connection with the country's LNG consumption levels, as the country is almost solely dependent on imported LNG for its natural gas supply. In case of Europe and the United States, as there are many underground gas storage facilities, LNG inventory levels are relatively lower compared with Japan. Assuming that LNG cargoes heading to Japan are counted on, additional 1.5 million tonnes should be added to the inventory volumes.
- Moreover, more than 60% of LNG is used by electric power companies, who also have different sources of power production and use LNG more or less as backup sources to adjust gaps or surplus of their total power generation. In recent years, operational performances of the country's nuclear power reactors, as well as increasing power supply from renewal energy sources, have dramatically changed the operation of LNG inventories. This is why the total inventory level at the end of November 2018 almost reached 5 million tonnes.
Compiled based on data from Gas Business and Thermal Power Generation Statistics, Ministry of Economy, Trade and Industry.
- According to data from the U.S. Energy Information Administration (EIA), working gas in underground natural gas storage in the United States was 3,317 Bcf at the end of September 2019, a 12.8% increase in one month, reflecting yet steadily increasing natural gas production. Stocks were 451 Bcf higher than one year earlier and 18 Bcf below the five-year average. The total working gas is within the five-year historical range.
- Underground natural gas storage facilities in the country generally inject more gas in summer starting in April and send out more gas in winter starting in November. Those trends have been created by the volume needs to use more gas in heating in winter, as well as by commercial motivations to buy gas cheap in lower demand periods between April and October and sell at higher prices in winter peak demand periods. Those trends have in recent years, however, to some extent moderated by increasing use of natural gas in power generation, particularly in summer peak periods, with the inventory peak declining in 2017 and 2018.
- The level of storage has been in a downward trend since 2018, as more gas has been exported by pipeline to Mexico, as well as to other countries in the form of LNG.
- According to data from EIA, storage stocks began the 2018 and 2019 injection seasons from April at relatively low levels, 1,335 Bcf and 1,155 Bcf, respectively. In 2018, operators replenished inventories at a lower-than-normal rate during the injection season, because of record-high power demand during the summer. As a result, total storage stocks for the end of November 2018 reached only 2,991 Bcf - the lowest since 2002.
- During the recent 5 years from 2014 to 2019, no new natural gas storage facilities began operating.
Compiled based on data from the U.S. Energy Information Administration (EIA)
- The stored volume of the European gas storage capacity (“working gas volumes”) of the Aggregated Gas Storage Inventory (AGSI +) members (including European Union (EU) member companies and non-EU (Serbia and Ukraine) member companies) as of the end of September 2019 was 1,060 TWh or 5.5% higher than the previous month, 163 TWh or 18.2% higher than one year earlier, and 157 TWh higher than the five-year average. The volume represents 97% of the working capacity, approaching the full capacity faster than usual.
- One of the biggest contributors of this increase of stored volumes has been growing imports of LNG into the European region starting in the second half of 2018. The ongoing global expansion of LNG production capacity, combined with slowing down of demand growth in traditional LNG markets in Northeast Asia, resulted in doubling of LNG delivery into Europe in the first half of 2019 from the level seen in the last couple of years, notably from increasing LNG volumes from the United States and Russia. Those operators, who want to buy gas cheap in off-peak periods and sell it expensive in high-demand winter, have been thought to use those storage facilities.
- During the five-year period from 2014 to 2019, the stored volume of natural gas in European underground storage facilities increased by 14% from 954 TWh to 1,094 TWh as of the beginning of October 2019.
- Those storage facilities generally inject more gas in summer starting in April and send out more gas in winter starting in November, with storage levels going up to 80% - 90% at the end of injection period. Storage levels go down to 20% - 30% of working capacity at the end of the withdrawal period.
- However, in recent couple of years, fluctuation of fullness levels has become larger, partly because of extreme weather conditions as well as commercial motivations of shippers of those gas storage facilities. The extreme winter cold of early part of 2018 drove down the total storage level to 18% at the end of March that year. The flood of LNG volumes imported into the region starting from the latter half of 2018 has increased volumes in gas storage in summer and autumn 2019, to nearly full capacity.
Compiled based on data from Gas Infrastructure Europe, Aggregated Gas Storage Inventory (AGSI). The 5-year range and average figures in the graphs do not mean the full 5 years storage amount because only data since January of 2011 is available.