Trend of Natural Gas and LNG Prices
- Assessed spot LNG prices (JKM) in Northeast Asia have been at the lowest level during the past ten years (effectively the lowest ever) at this time of the year since 23 October 2019. Notably on 30 October, the front-month JKM went down to below USD 6 per million Btu for the first time as that for December delivery in the JKM history. JKM for December 2019 delivery, which was on the first day as the new front-month on 16 October several dime higher than that for November delivery, stayed above USD 7 only from 17 to 21 October before its rapid decline. JKM for January 2020 delivery on the first day as the new front-month on 18 November 2019 was also assessed below USD 6. While Japan and China do not expect additional spot cargo demand as they have largely completed procurement for their winter gas demand, the market is expected to have ample LNG supply capacity in the coming winter. Japan's average LNG import price in October was USD 9.42 (USD 0.2 lower than in September) and in September 2019 was USD 9.62 (USD 0.51 lower than in August), while the METI spot LNG price was USD 5.4 in October 2019 (USD 0.5 higher than in September) and was USD 4.9 in September 2019 (USD 0.6 lower than in August).
- While the Henry Hub price in the United States went up by USD 0.3 in October 2019 to USD 2.63 at the end of the month, it was still almost 20% lower than that of the same time one year earlier responding to the sustaining growth of natural gas production in the country. Meanwhile the NBP price in the United Kingdom during October 2019 went up only slightly to USD 5.53 equivalent at the end of the month, still around half of the price one year earlier, reflecting continuous inflow of LNG and unseasonably high inventory in natural gas storage.
- Japan's average LNG import price of USD 9.42 in October 2019 was 2.05 times as high as the assessed spot LNG price in the region (JKM) for delivery in October (assessed between mid-August and mid-September) at USD 4.58. The gap between the two stayed above 2 times for four straight months from July delivery and was the highest ever. Based on preliminary figures from Trade Statistics from Japan's Ministry of Finance, the average landed prices of LNG to Japan from the United States and Russia in October were USD 8.83 and USD 8.26 respectively to undercut the overall average of USD 9.42.
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 has largely stayed below USD 10 since April 2019, except USD 10.13 in August.
- 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. In addition, since June 2019 it has almost all the time stayed in the lowest level in the history.
- Japan's average LNG import price was 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), and was more than twice as expensive as JKM from July to October, 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 18% in the first three quarters 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 July 2019 stood at 4.74 million tonnes, an increase by 15.5% from the preceding month and 32.3% from one year earlier. Despite an increase of LNG consumption for city-gas supply in July 2019 by 7.6% from the preceding month, LNG inventory volumes for city-gas supply increased by 2.3% from the preceding month and 16.5% from July 2018. While LNG inventory volumes for gas-fired power generation increased by 10.3% in July 2019 from the preceding month, LNG inventory for power generation increased month-on-month by 28.8% and year-on-year by 48.4%.
- 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 3,695 Bcf at the end of October 2019, a 11.4% increase in one month, reflecting yet steadily increasing natural gas production. Stocks were 522 Bcf higher than one year earlier and 52 Bcf above the five-year average.
- 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, more gas exports by pipeline to Mexico, as well as to other countries in the form of LNG, with the inventory peak declining in 2017 and 2018. Then in 2019, the further increase of domestic gas production has offset increasing consumption and exports to increase stored volumes again.
- 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 natural gas in European underground storage facilities operated by 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 October 2019 was 1,078 TWh or 1.7% higher than the previous month, 131 TWh or 13.8% higher than one year earlier, and 144 TWh higher than the five-year average. The volume has represented 97%-98% of the working capacity since the end of September, much higher than 87% at the same period in 2018 and the highest occupancy ever in the history of the storage statistics.
- 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 nine-month period 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 a little over five-year period from the end of August 2014 to the end of October 2019, the European gas storage capacity of the Aggregated Gas Storage Inventory (AGSI +) members (including European Union (EU) member companies and non-EU (Serbia and Ukraine) member companies) increased by 14% from 954 TWh to 1,106 TWh as of the beginning of November 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% or more than 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.