Title Transfer Facility (TTF) prices are at $11.22 per million British thermal units (MMBtu) as of the time of writing on 12 December, down from the $12.39 per MMBtu on 6 December.

TTF prices had gone up slightly to $12.60 per on 7 December due to revised forecasts of colder weather in midweek.

Prices then promptly fell and closed at $12.17 per MMBtu at the end of the week on 8 December.

The revisions for colder weather forecasts were not enough to arrest the trend of falling prices due to a healthy supply of gas and liquefied natural gas (LNG) into Europe, and high underground storage levels of 108.30 billion cubic meters (Bcm) at 94.7% full on 1 December.

The Asia spot LNG price was also down to $15.74 per MMBtu as of 11 December, as compared to $16.06 per MMBtu on 6 December.

Cold weather persisted in mainland China and South Korea, with the latter also revising its winter forecasts downwards.

The falling Asia spot LNG price in the face of colder forecasts indicates that major consumers in East Asia continue to anticipate sufficient stocks for the winter.

The US Henry Hub price deflated further to $2.41 per MMBtu as of 11 December, falling from $2.70 per MMBtu as of 6 December, despite the weather turning colder and a first major withdrawal of 117 billion cubic feet (Bcf) from storage.

High US gas production and underground storages have contributed to a net-bearish effect as of this point in time.

Europe

There were mild fluctuations in the TTF price last week as forecast temperatures were revised downwards in the middle of last week, although strong inventories and healthy supply flows eventually brought prices brought prices down by the week’s close.

This week, news of warmer temperature forecasts has pushed TTF prices even lower to $11.22 per MMBtu on 12 December as compared to $12.39 on 6 December.

Temperatures this week are expected to be warmer than normal, before decreasing slightly to hover around the average range until the end of the month, which is largely in line with the December forecasts from last week.

Withdrawals from underground storage have continued since early November, although levels remain high at around 104.52 Bcm or 90.9% full as of 9 December.

This is higher than the 100.98 Bcm or 88.8% reported on the same date a year ago. Europe reached a highest point of 114.95 Bcm of storage this winter season before net withdrawals started, which is the highest amount of underground gas held in storage since winter 2019.

Norwegian pipeline flows remained within a healthy band in the past week, at 346.99 million cubic meters per day (MMcmd) as of 10 December, as compared to the 354.20 MMcmd on 4 December.

Norwegian pipeline supplies continue to be a stalwart of strong gas supply into Europe and have continued to hold above the 300 MMcmd benchmark since the beginning of November.

As stated last week, Norwegian gas supplies are not expected to undergo extended maintenance with effects on a larger scale until February 2024.

Likewise, Russian pipeline flows remained in an expected range, with 95.77 MMcmd as of 9 December, as compared to 92.88 MMcmd as of 4 December.

Russian pipeline flows continue to hold within this range with very minor fluctuations since mid-June 2023.

The futures prices for major hubs appear to have maintained the same flat structure into the Northern Hemisphere summer of 2024. The current month-ahead January 2024 TTF price is around $11.52 per MMBtu, while September 2024 TTF prices are now at $11.54 per MMBtu. The futures price for the remaining months post September 2024 are on an upwards trend owing to a winter skew. As compared to last week where May 2024 appeared to be the inflection point for declining prices before reversing to increase for winter 2024/2025, the inflection point appears to have shifted later to September 2024. This may reflect market sentiment on end users being well stocked entering and exiting this winter, limiting activity for spot purchases and restocking. A peak of $11.68 per MMBtu is still being reflected in February 2024-delivered futures contract, although this has moved downwards of about $1 from the $12.70 per MMBtu for the same delivery month as reported last week.

The price difference between the Asian and European hub is around $4.50 per MMBtu, based on the reported TTF price of $11.22 per MMBtu and Asia Spot LNG price of $15.74 per MMBtu.

The difference between freight shipping between the two markets is about $1.50 per MMBtu, suggesting that the arbitrage is open.

Charter rates in the Pacific have slid from about $155,000 per day to $115,000 per day as demand appears to remain weak in Asia.

In the Atlantic, charter rates have also fallen, albeit only slightly from about $170,000 per day to $155,000, indicating that, while demand in Europe is still sufficient to prop up charter rates slightly, overall demand for LNG freight globally appears to be slipping as most demand regions are relatively well stocked and less in need of shipping demand.

The implication of a relatively lower charter rate in the Pacific may mean a reduced differential in shipping costs for routes to Asia against routes to Europe, estimated to be about $1.50 per MMBtu.

This is as compared to $2 per MMBtu seen last week, which means that optimization plays between the two routes may become easier to pull off, provided there is additional demand in Asia.

Asia

In Asia, Asia spot LNG prices continue their decline, from $16.06 per MMBtu on 6 December to $15.74 per MMBtu as of 11 December, despite the weather in China and South Korea experiencing colder temperatures.

Bearish sentiment in Asian prices likely reflect earlier expectations for winter gas and LNG supplies in East Asia to remain sufficient for the coming winter.

The Korean Meteorological Administration (KMA) revised forecasts downwards for most of December.

Forecasts now show that a higher probability of below-normal temperatures is expected to extend until 24 December instead of 17 December as originally forecast.

Forecasts for the end of December have also been revised downwards, with a higher probability of normal temperatures expected instead of above-normal temperatures.

Temperatures are then expected to transition to a higher probability of above normal temperatures from 1 January through to 14 January.

The Japan Meteorological Agency (JMA) forecasts that the northern regions of Tohoku and Hokkaido will have a higher probability of experiencing below-normal temperatures, while the remaining central and southern regions will experience a higher probability of above-normal temperatures.

This contrast in temperature between regions is expected to last until Mid-December, where it is forecast that colder than normal temperatures will be experienced throughout the entire country.

The winter season is resulting in a slight drawdown in Japanese inventories, as Japanese utilities report 2.19 million tonnes of LNG stocks on 3 December, down from 2.35 million tonnes in the previous week.

This is lower than the 2.53 million tonnes reported in the end of December 2022, but higher than the average of 2.06 million tonnes reported at the end of December from 2018 to 2022.

Re-gasification utilization rates in East Asia continue to hold in the past week, remaining at 44.57% as of 10 December.

An increase in utilization rates has mainly been sustained by China (from 50% to 62%) and South Korea (from 28.4% to 36%) from October until the end of November, as discussed in last week’s note.

However, there now appears to be a pick-up in the Japanese utilization rate, going from 30.93% on 3 December 2023 to 34.35% on 10 December.

This increase is in line with the timing in 2022 but occurs at a later time and a lower rate compared to previous years, as shown in Figure 2 below.

US

In the US, the weather has turned colder, with a withdrawal of 117 Bcf from underground storage levels, falling from 3,836 Bcf on 24 November to 3,719 Bcf on 1 December. This marks the first major withdrawal of the winter season, although prices have instead deflated from $2.68 per MMBtu on 5 December to $2.44 per MMBtu on 12 December.

Strong storage fundamentals contribute to this, with current storages of 3,719 Bcf markedly higher than the 3,465 Bcf observed last year on 1 December 2022, and the average of 3,485 Bcf observed from 2018 to 2022.

Adding to the bearish sentiment are also highs in gas production with an average of 119.1 billion cubic feet per day (Bcfd) as of 7 December 2023.

Feedgas into the US LNG terminals remain strong at an average of 14.44 Bcfd from 4 December to 10 December, increasing from an average of about 13.92 Bcfd the previous week.

Forecasts are expecting the number of heating degree days (HDD) to decrease and remain below the normal until the end of the year, which indicates that gas demand for heating may decrease.