Asia will continue to outbid Europe for LNG at least until the start of winter

Asian buyers are still outbidding their European counterparts in the competition for LNG supplies, as reported by the international energy news portal Montel. Analysts believe this situation will persist at least until the start of the winter season. One reason is the very healthy level of European natural gas storage following the past winter season. Forward gas prices are nevertheless rising amid forecasts of growth in EU economic activity.

The price spread between Europe’s most liquid trading hub, the Dutch TTF, and the Asian benchmark JKM (Japan/Korea Marker) averages USD 1.2/MMBtu (approx. EUR 3.8/MWh) for the third quarter of this year, in favour of the Asian market. According to a forecast by Energy Aspects, the price spread is roughly the same for each month of the third quarter.

“I don’t see a situation where TTF could rise above JKM,” said Olumide Ajayi, senior LNG market analyst at LSEG.

European natural gas storage levels are already approaching 70%, standing at 68.8% on 26 May. They were last higher at this time of year in 2020, when storage levels reached 71.7%. Spot LNG prices collapsed then, partly as a result of the spread of COVID-19, setting record lows in both Asia and Europe.

The situation is different now. Europe is gradually recovering from the energy crisis this year, and its economic activity is beginning to pick up. The healthy level of natural gas storage was achieved through a combination of an unusually warm winter season and lower consumption. The reduction went hand in hand with a slowdown in industrial activity. In the Czech Republic, gas consumption was at its lowest level since 1992 last year. Compared with average EU consumption in 2014-2021, gas consumption in 2023 fell by almost 18%.

In light of forecasts for a recovery in consumption, or rather gas demand, prices on long-term forwards in EU markets are starting to rise. Analysts have also taken note and believe that the current price spread between Asia and Europe will narrow.

“Based on our calculations, we think the spread is overstated,” said Min Na, head of Asian LNG at Energy Aspects.

The price of gas for 2025 on the Czech market had already topped EUR 40/MWh in the second half of May. The competition for LNG supplies mentioned above and projected growth in economic activity are helping to push prices higher, despite the healthy level of natural gas storage.

The situation seen in 2020 could therefore recur, with a very wide gap between spot prices and short-term forward prices. Storage facilities may be completely full ahead of winter, but they cannot cover winter consumption on their own. Spot prices may therefore be very low compared with prices for the winter months. Temperatures during the winter season and the recovery of the European economy will once again be the main determinants of price developments.