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Global LNG Update

A News Feature

Jan JKM averages $10.06/MMBtu, down 47% on year amid weak LNG demand

By Max Gostelow

December 16, 2014 - The Platts JKMTM for January-delivery cargoes averaged $10.06/MMBtu over the November 17-December 15 assessment period, down 47% year on year, as increasing spot supply weighed on sentiment resulting in the largest year-on-year drop in prices since Platts began assessing the JKM in 2009.

The Platts average JKM for January was also 19.4% lower month on month, despite January being in the middle of the traditional peak winter demand season in Northeast Asia.

January JKM prices started at $10.65/MMBtu on November 17, before falling to $9.90/MMBtu on December 1, as several traders offered already-loaded cargoes--the result of floating storage plays from the summer--adding to an existing supply overhang of winter cargoes.

Australia's North West Shelf facility and Russia's Sakhalin put additional pressure on prices, issuing two sell tenders in late November for December- February delivery cargoes.

Analysis continues below...

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South Korea's state-owned Kogas, the world's largest LNG importer, was heard to have bought four cargoes from NWS and two from Sakhalin; both tenders closed in the week ended November 28.

The NWS cargoes were likely sold to Kogas at around $10/MMBtu DES, although it was unclear whether Kogas participated directly in the tender or purchased the cargoes from third parties.

Kogas' unexpected return to the market prompted several Asian traders and one end-user to seek spot cargoes for second-half January delivery to Japan.

At the same time, concerns over excess supply eased as the number of distressed, floating cargoes in the market began to decline.

Combined, these events prompted a modest rise in the JKM price which reached $10/MMBtu on December 11, where it remained through Monday--the last trading day for the January JKM.

Inventory levels in Northeast Asian remained high though, a result of weak demand due to average temperatures and weak downstream power consumption, trade sources said. Buyers with space for additional cargoes opted to wait before locking in deals. Others remained hesitant to procure additional cargoes until downstream demand picked up in an effort to avoid tank-top conditions that could result if demand were lower than expected.

Rapidly falling crude prices also weakened LNG demand. With ICE Brent futures for January delivery hovering around $60/b, LNG contracts linked to oil, as well as oil itself, were becoming more competitive.

Some buyers looked to procure cargoes from the spot market for the first quarter 2015 at levels below oil-indexed long-term contract prices.

JKM, NBP, HH, coal and fuel oil price comparison

On the supply side, market participants widley expected additional supplies to come from Australia's NWS. Indonesia, the Middle East, and Papua New Guinea were also expected to add spare volumes to the market.

The UK National Balancing Point front-month futures averaged at $8.802/MMBtu over the past month, up 1.9% from the previous month but down 24.2% year on year, as concerns over winter pipeline shortfalls eased.

The spread between the JKM and the NBP narrowed to $1.204/MMBtu in the assessment period, down 67.1% month on month.

Front-month NYMEX Henry Hub gas futures averaged $4.019/MMBtu over the assessment period, up 2.1% month on month and 1.8% year on year.

The Platts FOB Qinhuangdao coal price averaged $3.608/MMBtu over November 17-December 15, falling 17.7% year on year, but gaining 2.4% month on month. Platts FOB Singapore 180 CST fuel oil averaged $10.573/MMBtu over the period, down 13.6% month on month and 32.9% year on year.

Next article: JKM-DES West India LNG spread shrinks as competition fizzles

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