Welcome to The Snapshot, a series examining the forces shaping and driving global commodities markets today.

This has been a challenging year for end users in the LNG market, as spot prices were unseasonably strong this past June through September after peaking to three year highs this past winter.

However, the bullish rally has lost some steam in recent weeks as supply has finally stabilized while demand has yet to gain any real traction before weather-related demand truly picks up. This recent weakness in spot prices could be a sign of things to come as the LNG market matures over the next several years.

The strong prices this summer were thought to be a bit of an indication of the tightness in the market as supply growth stalled and demand continued to push higher, underpinned by strong buying from China. JKM prices remained elevated and incentivized flows from the Atlantic basin and Middle East to help feed the robust growth in demand. This is very typical in a tight market, and is similar to what we saw during this last winter. However, things have changed recently as JKM prices are starting to anchor to TTF prices in Northern Europe, especially when we add transportation costs on top to compare the arbitrage opportunity of moving an Atlantic cargo to Asia.

High shipping rates over the past few months have helped close this gap while JKM prices have struggled to gain any upward momentum. Traditionally we tend to see a fairly strong correlation between these two pricing hubs during the summer months, especially in a relatively loose market such as in 2017 where the TTF plus transport provided a nice floor for JKM prices. We saw almost the opposite of that this summer with the initial rally in JKM prices this June. However, TTF is now starting to play a bigger role in where JKM prices are trading recently, which is not very typical for the winter.

This could be a sign of things to come, especially as supply growth starts to pick back up while demand growth slows.

So what are the fundamentals telling us about what to expect in supply and demand? Well, we saw very strong year-over-year demand gains this summer, which has largely been driven by structural demand growth in China. However, a late-season heatwave in Northeast Asia propped demand higher in Japan and South Korea. Even as temperatures moderated, strong imports continued in Japan and South Korea though around the middle of September, when total imports to the countries hit their highest levels since early April.

This was due to storage stocks rebuilding late in the season, and now imports have fallen to seasonal lows as stocks filled up. With plenty of volumes in storage and other generating fuels such as restarting nuclear capacity coming online, the demand growth in Northeast Asia will likely have to come from China. Cold weather could disconnect JKM and TTF prices this winter, but as supply ramps up we expect TTF prices will play an increasingly important role in anchoring JKM and this correlation will likely become a very significant one to watch moving forward. We will be following this story closely as we analyze the markets and fundamentals around the globe.

Until next time on Snapshot, we'll be keeping an eye on the markets.