Price Convergence of Global Gas Markets

As countries around the world are grappling with an extraordinary health crisis, the Covid-19 pandemic has caused an unprecedented disruption in the global economy and the financial markets. The financial instability was compounded by a demand shock that has struck the energy market. The current dynamics have caused global gas prices in US,  Europe, and Asia to converge to near parity.

Gas prices in Europe and Asia have plunged to record lows due to a confluence of drivers, including major demand destruction triggered by the Covid-19 pandemic and acute oversupply. Henry Hub, Japan-Korea-Marker (JKM), and Title Transfer Facility (TTF) in the Netherlands are becoming increasingly linked through the economics of LNG trading, driven by the short-term marginal cost at origin and the price at destination. An LNG capacity holder elects to export LNG when the spot price at the destination is greater than the costs, which includes liquefaction, shipping, etc. As is such, the relationship between the three gas prices, relatively to each other, determines if it is economical to export an LNG cargo.