The differential between delivered Asian LNG prices (JKM) and European gas hub prices (TTF) has been on a rollercoaster ride over the past 18 months. The Russian invasion of Ukraine in February 2022 led to a significant shortfall of piped gas supplies into Europe, balanced by:

1. A scramble for flexible LNG cargos from European buyers, pulling volumes away from Asia to meet strict EU storage mandates ahead of winter (driving the LNG NW Europe Marker (NWM) prices above JKM prices)
2. Significant gas demand destruction in Europe, which drove TTF significantly above NWM prices as regas capacity constraints bit.

The combination of these two factors drove TTF to a significant premium to JKM last year (with front month JKM-TTF spreads dropping below -25 $/mmbtu at one stage).

Recent months have seen the spread flip rapidly back towards positive territory, with front-month JKM-TTF above 0.5 $/mmbtu, compared to -15.4 $/mmbtu at the end of September 2022. The increasing JKM-TTF spread is in line with the swift decline in European gas prices over this time period as concerns over gas supplies eased, thanks in part to mild winter temperatures and price-driven demand destruction. As a result, gas storage inventories in Europe remain healthily at the top of the 5-year range near to winters end.

At current gas storage levels, the requirement to attract LNG volumes away from Asia in Summer 2023 is significantly reduced, flipping the current JKM-TTF curve positive for most of 2023 in an unwinding of Winter 2023 supply risk. JKM-NWM price developments are now much more in line with JKM-TTF spreads, as the buildout of European regasification capacity eases the constraints that saw the TTF-NWM spread blow out last year from import bottlenecking.

2024 is different story however, as the lack of flexibility in the European market and limited new LNG supply coming online until 2025 sees JKM dive back to a discount to TTF.

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