The Asian premium is coming back: JKM is now trading above TTF for Feb23 delivery, for the first time since Russia’s brutal invasion of Ukraine.
But how structural is this change?
In Europe, TTF prices fell sharply in recent days amidst unseasonably mild weather, high storage levels (standing 10 bcm above their 5y average) and continued strong LNG inflow.
In contrast, the northeast Asian market, and especially northeast China, is facing a particularly harsh coldspell, while Central Asian pipeline flows are down by ~50 mcm/d (vs 120 mcm/d average flow).
In addition, the region has limited storage capacity, making it more sensitive to supply-demand shocks during the winter season.
The current Asian premium seems to be driven by short-term factors, rather than reflecting a structural change.
However, it is also a reminder on the importance of Asian demand for the global LNG balance and the price signals for flexible LNG flows.
Despite all the crazy volatility this year, TTF and JKM remained closely correlated (at 0.95), reflecting the strong competition between the two regions for LNG… a competition which might become even more fierce in 2023, especially if China returns with renewed interest to the market.
What is your view? How will the TTF-JKM spread evolve in 2023? could we see a return of the Asian premium?
Source: Greg MOLNAR