Traders pointed to sellers in the market now favoring inter-basin trading activity over trading between regions due to heightened geopolitical risks as attacks on ships in the Red Sea by Houthi militants intensifies and raises uncertainty across the global LNG market. Although selling economics in the recent weeks for LNG was incentivizing supplementary cargoes to move from the Pacific to the Atlantic, heightened global tensions amid the attacks in the Red Sea have subdued redirecting cargoes between basins. Additionally, constraints with the Panama Canal has further worsened trading between basins and market participants battle the uncertainty in both the Panama and Suez canals. “The arbitrage has been closed since MOC activity [in Asia] died down, and I’m not sure how many cargoes are pointed to Asia,” an LNG source said. “[It all] seems to be inter-basin trading [right now].” Previously, LNG traders saw arbitrage economics prompting cargoes to move towards the Atlantic, given the current weak fundamentals in both Europe and Asia, as well as the higher associated costs and longer voyage times with taking a US cargo to Asia. One way to consider the price arbitrage between the regions is to compare staggered delivery dates, accounting for the longer voyage time to Asia, and the associated shipping costs. For US cargoes with a first-half January delivery into Europe, redirecting them to Asia for delivery in H1 February would generate a discount of around a $1.069 cents/MMBtu. This is when comparing delivery prices and additional the cost of freight. This fell slightly from the $1.055/MMBtu discount on Dec. 19. Platts, part of S&P Global Commodity Insights, assessed the February JKM — the benchmark price reflecting LNG delivered to Northeast Asia — at $11.793/MMBtu on Dec. 20. Platts assessed H1 February at $11.863/MMBtu and H2 February at $11.722/MMBtu. Platts DES Northwest Europe Marker for February was assessed at $10.198/MMBtu Dec. 20. First half and second half of NWE February were also both assessed at $10.198/MMBtu Dec. 20. Shipping sources indicated the possibility to move more volumes from the Pacific towards the Atlantic Basin. However, difficulty lies within the time lag in redirecting vessels towards the Atlantic, as well as the current constraints with taking cargoes through the Suez and Panama canals. Sources currently see the rising tensions in the Red Sea as well as the delays at Panama Canal mitigating trading activity within each region’s respective basin. Other traders saw potential for different flows, with some opportunistic sellers taking cargoes from the Atlantic to the Pacific however, they added that with the ongoing constraints near the Suez Canal, “people are thinking of safety first, so it is mainly inter-basin trading rather than between different regions now.” Although previous economics had incentivized opportunistic sellers to redirect cargoes between the Pacific and the Atlantic, the ongoing delays at Panama Canal and constraints at the Suez Canal have pushed sellers to keep their cargoes within their respective basins. The ongoing situation in the Red Sea has pushed vessels towards the Cape of Good Hope and away from the Suez Canal. At the start of the week at least three LNG carriers looking to transit the Suez Canal have diverted to longer routes as attacks by Houthi rebels in the region pushed a change in transit flows, according to S&P Global Commodities at Sea data. The continued uncertainty at the Panama and Suez canals coupled with the lack of demand and subdued arbitrage economics have depressed international trading opportunities. As a result of the weak demand and poor economics, the number of available spot vessels has risen higher in the market. With traders now keeping cargoes within their respective basins, and demand still lagging behind, vessel availability has improved significantly since last month. While the number of available spot vessels in the Atlantic was steady week on week, it has nearly tripled since the end of last month till now. In the Pacific, vessel availability has risen slightly on the week and has nearly doubled since the end of November. While rerouting vessels from the Suez towards the Cape of Good hope may increase shipping demand and increase freight rates, the withered demand, poor arbitrage economics and increased number of available vessels may cushion any price hikes. Source:

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