Europe now global LNG price-setter, Asia growth to slow in 2022 – Woodmac

27 May 2021

London, (Quantum Commodity Intelligence) –Global liquefied natural gas (LNG) markets are set to tighten over the next five years, due to supply pressures, but Europe’s market dynamics are turbo-charging the price recovery with the TTF gas benchmark currently trading close to US$9 per million British thermal units (mmBtu), said energy consultants Wood Mackenzie Thursday.

‘Following the recent winter spot price spike in Asia, the European market has been sustaining global LNG prices, making the region a battleground for global LNG price formation,’ said Woodmac in a research note, adding TTF is at a level not seen since mid-2018.

Robert Sims, Head of LNG Short-Term, Gas and LNG Research, said: "Post-pandemic demand recovery, limitations on Russian pipeline exports and unseasonably cold weather, particularly in April, all contributed to a tighter market, pushing European storage levels down to multi-year lows."

"But the key dynamic for the price surge has been the strengthening economics of coal-to-gas switching. Since November last year, carbon prices and coal prices have increased by 33% and 26%, respectively, which alone have pushed European TTF gas prices up by US$3/mmBtu."

Asia LNG

Sims said the Asian market is also tightening, but that growth is set to slow in 2022.

Demand for LNG restocking in northeast Asia was particularly strong in the first quarter this year but is still far below levels seen at this time last year. Restrictions to coal usage see increasing volumes of gas burns in the power sector in South Korea and Taiwan. 

Meanwhile, next year, coal and nuclear capacity will increase in Japan and South Korea and more offshore domestic supply will be available in India, leading to a slow down in growth in the region.

Sims added, "…China is where much of the growth is currently materialising, with coal-to-gas switching policies gathering pace, resulting in a demand surge of 2.2 million tonnes since the beginning of the year, 8% more than in 2020. We expect this strong growth to continue as domestic production growth continues to lag behind domestic demand growth."

"Strong Asian LNG demand means that the Japan spot price is now trading over US$10/mmBtu for deliveries in June, a premium in excess of US$1.5/mmBtu over TTF."

Woodmac said market dynamics will remain tight throughout the rest of the year, noting though that global LNG supply will be stronger this summer compared to the same period last year, with some additional 16 million tonnes per annum (mmtpa) supported by full utilisation of US LNG.

However, demand for restocking and strong coal-to-gas switching economics will support European prices through the summer – with European carbon prices being the single biggest risk to LNG values, concluded the report.