Since the beginning of November, which broadly marks the real start of the heating season in the northern hemisphere, the weather has been generally colder than average in Europe and Asia, based on data for selected cities. For Europe and Moscow, the difference has been fairly marginal but for Asia, the winter has been around 24% colder than normal so far this year when measured in terms of the number of Heating Degree Days.
The cold start to the winter in Asia has had an appreciable impact on the price of ‘spot’ LNG cargoes (the estimated price for cargoes to be delivered in 4–8 weeks time). The price of such cargoes has increased almost a quarter since the end of October and now stands at USD 584/kcm (USD 16.6/mmbtu) as buyers seek to ensure they have adequate supplies. The equivalent price of LNG for Europe has moved up significantly less, around 3%, resulting in a substantial widening of the premium of ‘spot’ North East Asian LNG relative to that of Europe to USD 192/kcm (USD 5.5/mmbtu), which is more than enough to encourage cargoes from Europe to Asia.
As we have discussed before, LNG availability to Europe has dropped sharply this year and the current price disparity with Asia is only likely to see even greater pressure on LNG supply to Europe, we believe.
In our view, the decreasing availability of LNG to Europe is the key reason European spot gas prices have risen since the summer, despite the pressure on overall European gas demand. The ‘spot’ LNG price to Europe tends to cap the European spot price and is arguably currently setting the European spot price. With the Asian LNG price differential not far off its highs, we think there is a considerable risk that it will pull up the European price, reinforcing the potential for the European spot price to trade up to, or even above, the
The recent particular pressure on the NBP price has eased, bringing it close to its normal relationship with Zeebruge. It is currently trading at USD 380/kcm (USD 10.8/mmbtu) and a 19% discount to our estimate for the current price of