Spot LNG freight rates more than doubled in the past month driven by a combination of contango-driven floating storage and US sanctions recently imposed on shipping companies. With such an increase in freight rates, it is possible that for some market participants currently floating LNG simply discharge their cargo and lease their tanker out. Although we have not seen this
play out yet, this would potentially further weaken near-term global gas fundamentals in addition to helping offset some of the current tightness in the freight market.
Even if floating storage remains high, thereby keeping freight rates elevated, we would argue that JKM does not have to rally as a result as long as the Pacific basin remains oversupplied, which is our base case for the next 12 months. This has been illustrated by the sell off in the Dec19 and Jan20 JKM contracts in the past month and by the JKM-TTF differential keeping well below Europe-to-Asia reload costs. Accordingly, we maintain our bearish view on winter JKM at $6.10/mmBtu (vs. forward prices currently at $7.19/mmBtu for the balance of the season).
That would be the lowest Asian winter prices since 2004. In Australia the price is still $10Gj when the equivalent ADGSM price for export net back should be below $7Gj.
It’s still much cheaper to buy Aussie gas in Japan than it is in Australia.
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