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LNG Natural Gas Market Update – 18th – 22nd September 2017

Market Analysis

Crude Oil

  • Brent and WTI prices remained bullish through the week primarily based upon last week crude oil demand report from OPEC, IEA and EIA along with planned OPEC/Non-OPEC Ministers meeting in Vienna on Friday 22nd September 2017.
  • Friday OPEC meeting to review KSA proposal on export number compliance along with extending the production cut beyond March 2018 was uneventful.
  • The committee will review the situation in November as seems like OPEC and Non-OPEC members were comfortable with production cut compliance and demand growth.
  • Crude prices also got bullish support from declining US oilrigs number; this has been the third consecutive decline in last three weeks.
  • Weaker US dollar has also been supporting Crude Oil price during the week.
  • Brent price closed at $56.86/BBL on Friday, an increase of 2.23% from last Friday price of $55.62/BBL, whereas WTI closed at $50.66 on Friday, an increase of 1.54% from last week price of $49.89/BBL.
  • Brent/WTI spread this Friday increased to $6.20/BBL from last week spread of $5.73/BBL.
  • Brent curve market in backwardation, depicting investor lack of confidence in OPEC/Non-OPEC production cut and overall demand-supply, Brent furthers closed $56.79/BBL, $56.37/BBL & $56.09/BBL for November, December and January 2018 respectively.
  • For WTI curve market, Friday closure were $50.66 /BBL for November, $51.03/BBL for December and $51.29/BBL for January 2018.
  • EIA Weekly report reported a buildup of 4.6 million barrels with stock at 472.8 million barrel on 15th September 2017; against a market expectation of 3.5 million barrels build up.
  • Gasoline inventories at 216.2 million barrel reported on 15th September 2017, recording 2.1 million draws on week on week basis.
  • US refineries operated at 83.2% of their operable capacity and input to crude oil refinery increased by 1.1 million barrels a day from last week, exhibiting resumption of operation in the US after two powerful hurricanes.
  • Baker Hughes rig count reported a decrease by 5 in oilrigs with total standing at 744, whereas gas rig increased by 4 and stands at, with a total number of rigs at 935, still 424 more rigs than last year.
  • With OPEC meeting non-committal and crude curve market, seems like a bearish run for the coming week.

Natural Gas

  • Henry Hub prices started on Monday on the bullish trend from last week Friday primarily due to overall warmer weather. Prices remain stable till Wednesday the EIA weekly inventory report.
  • Revised weather outlook for chillier weather from weekend put a bearish tone beside sell activity was witnessed more that buying as investors took profit-taking instance.
  • Next week weather outlook is cooler than current week, which, have dampened natural gas demand.
  • Thursday prices tumbled as EIA issued its weekly report with higher production rate along with lower consumption rate.
  • Henry Hub closed $2.96/MMBTU on Friday, the same level as Friday as inventory number along with cooler weather is hampering the demand for the next week.
  • According to market, US gas consumption is expected to slide from 72.5 BCFD to 71.7 BCFD as there are still 84,000 consumers without power in Florida.
  • Baker Hughes reported an increase by in natural gas rigs by 4 and total number stands at 190.
  • Working gas in storage was 3,408 BCF as of Thursday, September 21st 2017, an increase of 97 BCF from the previous week, against an expectation of 90 BCF, another largest net injection. Stocks were 136 BCF less than last year at this time and 67 BCF above the five-year average. At 3,311 BCF, total working gas is within the five-year historical range.
  • October Natural Gas futures settled at $2.945/MMBTU, whereas $3.170/MMBTU for November & $3.280/MMBTU for December delivery on Friday, exhibiting stable to bullish tone.
  • Gas prices in the UK took a bearish trend throughout the week due to mild weather outlook, adequate pipeline supply, healthier LNG outlook along with a rise in wind power generation.
  • Pipeline gas supply on the rise from Norway and Russia after maintenance completion from Langeled and Nordstream.
  • Wind based power generation picked up due to Hurricane Maria however solar is still weak.
  • NBP UK DA prices closed 45.930 Pence/Therm (equivalent $$6.14/MMBTU) on Friday, decreased by 4.66% from last Friday of 47.7160 Pence/Therm.
  • NBP UK curve market for October and November closed at 44.9400 Pence/Therm & 47.5500 Pence/Therm ( the equivalent of $5.93/MMBTU & $6.14/MMBTU) downward trend based upon adequate supply and better LNG outlook.
  • Weather is expected to be cooler in Netherland; demand is expected to be low along with improved pipeline gas outlook in the continental system from Norway and Russia. France is expected to be above normal seasonal level, however weather based demand generation is not big as the system is well supplied.
  • TTF closed at €17.12/MWH ( the equivalent of $6.00/MMBTU), PEG Nord France closed at €17.15/MWH ($6.00/MMBTU), down by 3.98% and 4.52% respectively from last Friday.
  • Spain and Portugal are expected to be warm and the requirement for natural gas is high due to air-conditioning requirement.
  • Iberian Peninsula prices settled at €18.25/MWH ($6.39/MMBTU) on Friday, up by 2.24% from last Friday price of €17.85/MWH.
  • In the curve market the prices, TTF November closed at €17.32/MWH ($6.07/MMBTU) and December at €17.68/MWH ($6.19/MMBTU).
  • November & December PEG Nord forward prices closed at €17.73/MWH ($6.21/MMBTU) & €18.13/MWH ($6.36/MMBTU), bearish trend based upon better gas pipeline supply.

Currency

  • Dollar remained volatile throughout the week due to FOMC meeting anxiety pertaining to the rate hike and QE Program unwinding, geo political situation and US economic data.
  • The dollar bullish run is attributed primarily after Fed on that one more interest rate hike is likely this year and said it will begin to unwind its $4.5 trillion balance sheet focusing on QE in October.
  • Bearish factor was geopolitical situation as tensions between the U.S. and North Korea re-emerged, both US and North Korea engaged in verbal war after US President signed an executive order to impose new US sanctions on financial institutions that do business with North Korea, rising demand for safe haven currencies like Yen and Swiss Franc.
  • On the economic front, USD got the support from labor data as reported on Thursday that jobless claims declined by 23,000 to hit 259,000 from last week.
  • Bearish pull for dollar came after sales of previously owned homes in the US unexpectedly fell in August by 1.7% against market expectation of a rise of 0.3%.
  • The S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, remained volatile with 92.03 on Monday and going up to 92.48 on Wednesday before closing at 92.14 on Friday.
  • Euro/USD remained range bound with another week of consolidation for Euro. Traders are closely watching tapering discussion along with Sunday German elections. Euro/USD closed at 1.1946 on Friday.
  • GBP/USD remained range bound within the week, however, grew strength from last week as UK government managed to get Brexit bill passed and PM May hinted that UK could leave EU before March 2019 with two years of transition period. GBP/USD closed on 1.34930 on Friday,
  • Japanese Yen remained stable before transforming into bullish trend due to the war of words over North Korea as the US slapped more sanctions on North Korea and North Korea retaliated with hydrogen bomb testing, raising the demand for safe haven currencies like Yen. USD/JPY closed at Y111.98 (JPB/USD 0.00893) on Friday.
  • AUD/USD closed at 0.79630 on Friday, got the boost on Friday on increased tension from North Korea.
  • Chinese Yuan declined to 6.59196 on Friday, range bound between 6.57 -6.59 as investor still trying to figure our where Bank of China want the currency after last week slow growth report.

Weather

  • UK, Germany, Belgium & Netherland weather remained in the range of 15-19oC and expected to warmer around 18-21oC with more sunny weather in the region. 
  • France was around 15-20oC and expected to be a warmer around 17-23o
  • Weather remained warm in Spain & Portugal with some rain showers and expected to be warmer around 25-29oC with sun shining majority of the week.
  • Temperature in Argentina was very volatile ranging between 12-26oC as there were rain and clear sky, Next week is expected to be around 17-20o
  • Brazil remained hot with temperature around 23-30oC, lower range is due to rain, and next week expected to remain around 28-30o
  • Mexico is getting warm with temperature around 20-25oC and expected to be warmer next week around 25o
  • Middle East region summer season still prevailing, with Egypt around 32-36oC and expected to be around 30-33oC, Kuwait 42-45oC and Dubai around 38-43oC, next week weather easing a bit with Kuwait and Dubai around 38o
  • Pakistan weather remained around 33-37oC whereas in India temperature was around 27-32oC with some cloud cover. Next week weather is expected to remain around 31oC with sunny condition and India around 28-30o
  • Temperature still hot in North East Asia, with the temperature around 32-36oC in Taiwan, 25-28oC in Korea, China 27-30oC, and Japan is around 26-31oC, with two day around 22oC level due to rains. Weather expected to be bit cooler with rain in the coming week with Taiwan 35-38oC, Korea around 21-28oC, China 22-30oC & Japan 23-26o
  • South East Asia already in hot weather, Thailand around 30-36oC, Indonesia and Malaysia around 31-34oC, and will remain same next week.
  • USA Weather:  Overall weather remained is warm this week with the outlook of colder weather in the coming week.

LNG

  • LNG prices remain bullish throughout the week due to higher crude oil, recent fixtures, demand from China and delay in one LNG project.
  • Brent remained bullish throughout the week and that was one of the factors supporting the LNG prices bullish run, Brent closed at $56.86/BBL.
  • Last week fixtures for November cargoes by Russian and Indonesian suppliers reported around $7.70/MMBTU mark.
  • Start-up at Wheatstone project is delayed as it was supposed to come online by end September.
  • Demand is high in China as buyers from China still looking for cargoes.
  • There is reduced availability of LNG cargoes as buyers are focusing on maximizing their long-term contractual purchase, which is a cheaper option than current spot prices in Asia.
  • Asian prices maintained its bullish trend since 10th July 2017 and price closure on Friday were; JKM at $7.8000/MMBTU, SLNG NEA Delivered at $7.6460/MMBTU and FOB Singapore at $7.3490/MMBTU.
  • Indian buyers are in the market for November delivery and based upon FOB Singapore and the Middle East, DES India is calculated around $7.55/MMBTU level. DKI SLNG Index on Friday reported at $7.53700/MMBTU.
  • JKM Future curve market closed at $7.695/MMBTU, $8.325/MMBTU & $8.5500/MMBTU for November, December 2017 & January 2018 delivery respectively, this suggests that market is expecting price correction for November, whereas winter market is in contango.
  • European hub curve prices were bearish this week due to weather outlook and adequate pipeline gas. However European hub prices are driven this week based upon netback on Asian spot prices.
  • Keeping in view Asian prices, North West Europe prices were estimated to be at par with NBP UK November price equivalent of $6.40/MMBTU level whereas for Nether market its 30 cents premium on TTF November price of $6.07/MMBTU level.
  • Based upon netback from Algeria for the Asian market, South Western Europe prices are estimated to be in the range of $6.55/MMBTU.
  • US Gulf Coast producer price on FOB basis for November delivery for Asian destination comes around $6.60/MMBTU level as currently, Asian prices are dictating global LNG prices.
  • Henry Hub based LNG prices are lower than Gulf Coast FOB prices based upon, where Henry Hub based price is estimated at $5.90/MMBTU.

Author’s Comments

  • Crude based LNG prices at 13% slope are a cheaper option than Asian LNG spot prices, so with the bearish trend of crude oil prices and LNG price, upward trend continuation may be a question mark for Asian market of Japan, Korea and Taiwan, which have long-term crude linked contracts. Overall Crude impact on LNG prices seems bearish.
  • European price outlook is bearish keeping in view SPOT prices in the Asian market, Based upon current Asian prices all the producers are getting better netback on Asian destination. Current Asian prices seem very attractive for reload of cargoes from European terminals.

LNG Merchant Activity

LNG merchant data is developed in collaboration with Clipper Data LLC.

  • 74 vessels carrying 4.52 million tons (217.51 BCF) loaded from various supply centres, during the week from 9th September 2017 till 15th September 2017.
  • Primarily increase is from Qatar and USA.
  • Month to date 37 vessels carrying 2.50 million tons have been dispatched from Ras Laffan, Qatar, this represents 31.70% of total global trade
  • 20 Vessels left from Qatar carrying 64.46 BCF for India, Korea, Japan and Europe.
  • Five vessels carrying 14.15 BCF departed from Nigerian port, for Middle East, Europe and South America.
  • Algeria loaded five vessels carrying 10.03 BCF for Italy, Spain, Turkey and Egypt.
  • Pont Fortin, Trinidad & Tobago loaded three vessels with 8.22 BCF for Puerto Rico and Spain.
  • Two vessels loaded from Brunei with a load of 5.49 BCF for Korea and Taiwan.
  • Twelve vessels left from Australian export terminals of Dampier, Darwin and Gladstone ports for India, Taiwan, China and Korea carrying 36.86 BCF.
  • One cargo left for France with 2.87 BCF from Norway.
  • Middle Eastern terminal at Das (UAE) and Qalhat (Oman) loaded 4 vessels carrying 10.64 BCF for India, Japan and Korea.
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