Northwest Europe marker (NWM) futures prices for 2024 retreated by over 3 $/mmbtu over December 2023, as mild temperatures and strong wind compounded existing demand weakness in Europe, keeping underground gas storage stocks near seasonal record levels. While outright JKM prices also fell, the drop was smaller, driving the cross basin JKM – NWM spread wider across 2024 by 0.5 $/mmbtu.

Cross basin spreads are formed by (1) the competition between Asia and Europe for marginal flexible cargoes, and (2) Europe vs Asia shipping differentials (which depend on freight rate, fuel price, voyage time etc.). 

The key drivers of the widening JKM-NWM spread across 2024 include:

• Reduction in global gas pricing bringing back price sensitive importers on the buy side in Asia as spot LNG becomes more competitive, increasing the expected pull-on Atlantic supply
• While spot freight rates have declined, the challenges in shipping via both the Panama Canal (which is facing limits on transit capacity due to low water levels on the back of drought conditions) and the emerging security risks around the Suez Canal (due to attacks by Houthi rebels on ships) have increased the risk of higher cost to deliver Atlantic Basin supply to Asia

The NWM spread to both JKM (for marginal cargo flows) and to European gas hub pricing (for merchant value of European market access) will continue to be key markers for the market into 2024.

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