Inter-Basin Spread LNG

Can anyone explain to me what an inter-basin spread is in LNG and what it means for the overall industry now that it is positive? My (rudimentary) understanding is that it is simply the difference in spot price of LNG at different basins, this particular time being Platts JKM (delivered to NW Asia) and Dutch (European). Given this, what does this imply for the industry. I have struggled to find this online, and simply want to gain a better understanding of the industry.

Comments (9)

Jan 11, 2022 - 10:44pm

Your rudimentary understanding is correct. Inter-basin is is mostly the spread between JKM and TTF or TFU in USD. The implication is that it affects the flow of the cargoes. JKM is usually at premium to TTF(Asia premium), but this relationship has recently been disrupted due to strong demand in Europe. 

Another implication is for those that trade the spread. For instance, we sometimes buy TTF and sell in JKM, so we trade the spread to lock in the profit. Hope this helps. 

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Jan 11, 2022 - 11:35pm

Woah we digging deep...at a high level think of it like this as well;

As other poster said we have 2 markets, TTF and JKM. One market is a very mature market that has lots of underground storage and their pricing depends on the storage spreads. The other market lacks storage and has very high baseload demand but its "demand peaks and troughs" are less so than the mature market cause they lack storage. Due to the lack of storage, the mature market basically had depend on mother nature for their fate, "remember we said their demand peaks and troughs" are worse so when demand intensified it overwhelms their storage so now they need more flowing supply but there is no more continental supply. So as mentioned we need to change the pricing paths and relationships for cargoes.

Now we got all that down...I am Brasil how do I price my demand? I do not have extensive storage either...but I am closer to one market than the other...etc. 

Google "linear programming for LNG optimization"

Jan 12, 2022 - 7:18am

Correct its more the pure physical side, but the information OP is seeking does not exist out there. LNG historically was a series LTC with different options/stipulations. Understanding how the physical is scheduled will help one get a sense of why a "basis spread" is important. Maybe the google, LNG portfolio optimization is a better search.

Jan 12, 2022 - 7:39am

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