Market Insight | Week 49
Shedding some light this week to the LNG market performance and dynamics, the commodity spot market demonstrated an upward trend in November. At the beginning of the month NE Asia LNG spot price remained at $13.8/mmBtu, matching the end of October. However, a gradual increase occurred during the second half of the month, with the price rising to $14.60/mmBtu by mid-November, and gaining another $0.50 by month’s end, reaching $15.10/mmBtu and still standing at the levels of $15/mmBtu.
Similarly, the benchmark front-month contract for the virtual Dutch hub TTF also experienced a rise, from €38.90/MWh at the start of November to €47.50/MWh by the end of the month, marking a 13-month high, to slightly decrease at €45.7/MWh currently. This firming of the market is mainly attributed to expected colder conditions in Asia, with revised weather forecasts predicting below average winter temperatures for major importing countries such as Japan, China and South Korea. Moreover, the decline of European LNG reserves by 10% from the beginning of November, falling to 85% of full capacity, has added to the demand.
In response to the above market conditions, US LNG exports to Europe rose, amid concerns regarding the expiration of the Russian gas transit contract through Ukraine on January 1, 2025, creating uncertainty. If no new agreement is reached, a potential cessation of this transit could significantly alter trade patterns impacting Central Europe, as the gas transited via Ukraine constitutes a significant share of the pipeline Russian gas exports to Europe.
Moreover, market participants await the new US President administration to commence in January and his course of action in relation to the LNG market. Based on Trump’s campaign, there will be an end of the pause imposed by Joe Biden to LNG export permits, allowing the acceleration of US LNG infrastructure expansion, increasing US and global LNG supply. This is likely to reshape market dynamics and LNG flows in the next year, considering Europe seeking alternatives for Russian gas and the impact of tariffs on US-China LNG trade.
Concerning the LNG carrier sector, increasing trends of the tonnage supply and subdued growth of LNG trade have pushed the rates close to record low levels. In November, the 1-year time charter rate stood on average at $40,600/day, demonstrating a downward trajectory during the month, from $48,000/day falling to $35,000/day at the end of November/beginning of December, significantly below the 2024 Jan-Nov average figure of $72,229. Similarly, November’s average spot rate read $26,600 per day, with the month ending with a spot rate of $23,250/day and falling further to $23,000/day in the first week of December. Hopes for a possible uptick are supported by an increased demand for spot tonnage in the West, seasonality and cold weather forecasts expected to uplift heating needs in East Asia, combined with declining European inventories. Moreover, the current Red Sea disruptions may provide some further back up in terms of ton miles.
Looking ahead, the global LNG market is set to experience a significant influx of new liquefaction projects, which are expected to begin operations in late 2024 and early 2025. These projects are projected to increase global LNG capacity by approximately 40% over the next five years. While this growth will expand the market, there are risks of oversupply if demand fails to absorb the additional capacity, which could lead to periods of low prices.