Head of Natural Gas, Coal and Carbon Research
16:25 - 16:50
Thursday, 19 September 2019
S1.10 JKM-TTF: Caught in the Middle with Henry
The globalisation of the gas market continues apace. In this presentation, we make sense of the interconnections between the world’s three dominant gas hubs—the NE Asian JKM, the European TTF and North America’s Henry Hub—and why prices between them converge or diverge depending on market supply and other factors. A key development of the last two years has been the greater price divergence seen by all three hubs despite the wave of new supply. To understand these global market dynamics, we will first assess how the economics of trade flows determine where the JKM-TTF spreads need to go to help LNG markets balance. We will present the required arbitrage levels (the level of price spread) for the main gas flows that will directionally respond to the JKM-TTF spread’s price signals, including Yamal, EU reloads, US, and Qatari LNG. We will break down the variable cost structures of global LNG, reflecting on differences driven by routes, canals and the importance of LNG tanker rates and other variable costs in those arbitrage calculations. Additionally, we will quantify, using Energy Aspects proprietary global gas supply and demand balances, the key drivers for the global gas market that will influence which of those arbitrage levels will prevail in the coming years. These drivers include: how much global incremental supply will be added, how much LNG demand NE Asia will bring to the markets in the coming two to three years, how much LNG the EU market can actually take, and what needs to happen to the TTF-Henry Hub spread if the global LNG market lurches into oversupply. We will then look at what other barriers might work to thwart price convergence in terms of region-specific price drivers. In general, we conclude that the next two years will likely see higher incremental supply than demand, and this will narrow both the JKM-TTF spreads and the TTF-Henry Hub spreads.