Asian LNG offers drop below UK gas price, prompt diversions to Europe

LONDON (Reuters) - Asian spot prices for liquefied natural gas (LNG) have fallen below the UK front-month gas price, reversing a multi-year trend in which Asian prices had a premium over Europe and prompting some traders to redirect cargoes to Europe from Asia.

FILE PHOTO: Snow-covered transfer lines are seen at the Dominion Cove Point liquefied natural gas (LNG) terminal in Lusby, Maryland March 18, 2014. REUTERS/Gary Cameron/File Photo

Typical Asian LNG premiums over European gas prices occur especially in winter, when Asian demand jumps. But as temperatures in Asia have been unseasonably warm this winter, Asian gas stocks have remained full, dragging prices in December and January in Asia below winter levels of the past two years.

The price flip happened on Wednesday when wholesale front-month prices on the UK NBP gas hub opened at around $7.25 per million British thermal units (mmBtu), rising above $7.30/mmBtu later in the day, Refinitiv Eikon data showed.

Meanwhile in Asia, Royal Dutch Shell lowered its offer for March delivery in the Platts window from $7.45/mmBtu at 0759 GMT to $7.10/mmBtu at 0826 GMT on Wednesday.

At the time of the offer, the British front-month gas price was around $7.25/mmBtu. On Thursday, BP lowered its offer for late March delivery in Asia to $7.10/mmBtu from $7.20/mmBtu.

The UK gas front-month price fell by the session’s end to $7.07/mmBtu at 1630 GMT on Wednesday. It opened around $7.06/mmBtu on Thursday on a well-supplied system.

However, as no deals for either Shell or BP offers took place in the window on Wednesday or Thursday, the tradeable level in Asia may still be below the British gas price.

Traders said they often compare the spread between the Asian front-month price, which is March now, and the NBP front month, which is February now, because of the difference in delivery times to Asia and Europe from Atlantic-based LNG plants.

Also, a cargo’s loading date defines which delivery periods are compared, they said.

“(To decide where to send a cargo) you consider the delivery month for price calculation purposes, which may be different for Europe and Asia,” one trader said.

“Delivery from the U.S. to Europe takes less time than from the U.S. to Asia, so the delivery months might be different.”

The UK gas premium over Asian LNG has prompted some traders to start redirecting LNG cargoes to northwest Europe from Asia.

Vitol on Wednesday changed the destination of two LNG cargoes sourced in the United States to northwest Europe from Asia due to the discount on Asian prices compared to those in Britain, an industry source familiar with the matter said.

Those cargoes are for delivery in February and March.

Vitol has redirected five cargoes from Asia to Europe since the start of the year with arrivals up to March.

(Graphic: Japan Korea Marker (JKM) front month price versus Dutch and British gas hub front month prices

The UK front-month price was last above the Japan Korea Marker (JKM) LNG price in the second quarter of 2016, when the Asian price dropped below UK quotes several times. In February 2015, the UK price continuously held above the Asian LNG price.

Europe has seen an influx of U.S. cargoes this winter due to low Asian demand and prices, with 48 cargoes delivered between October and March.

Total send-out levels in the UK have averaged 50 million cubic metres (mcm) per day this month, compared to 6 mcm per day in January 2018 and 8 mcm per day in January 2017, Refinitiv Eikon data shows.

However, the latest level is well below the send-out capacity of over 157 mcm per day, with traders expecting a further increase in LNG arrivals.

“It is truly an armada of LNG (into Europe), and the best is yet to come in March and April when the winter season is over in (Asia),” the industry source said.

Reporting by Ekaterina Kravtsova; Editing by Dale Hudson