Interactive: US LNG avoids Europe, flows to higher premium markets

Jake Horslen


Europe has received just 8% of delivered volumes of US LNG since Cheniere’s Sabine Pass export terminal in Louisiana came online in February, according to ICIS shipping platform LNG Edge.

The majority of cargoes have instead found a home in South America, where markets have offered exporters a more favourable return than that available based on recent European hub prices. Forward prices suggest the trend of low flows to Europe may persist into the upcoming winter period as well.

As of 6 September, ICIS LNG Edge data showed that around 3.4 million cubic metres (mcm) of LNG had been delivered from Sabine Pass via 26 cargoes. A little more than 57% of total exports have been delivered to South America, with Chile the single biggest recipient having absorbed 28% of the total volume.

Since Anglo Dutch Shell began lifting cargoes from Sabine Pass Train 1 earlier this year, there have been seven cargoes delivered from the US to Quintero. GNL Chile – the buying consortium that comprises state-run refiner ENAP, gas distributor Metrogas and Spanish generator Endesa – receives cargoes through a long-term contract initially concluded with UK-based BG Group, which was acquired by Shell.

Europe’s 8% share of the export total comprised single deliveries to both Portugal and Spain.


The destination of the first cargoes exported from Sabine Pass is not surprising as South American markets have consistently offered exporters the best returns on a netback basis. ICIS models FOB netback prices for key LNG-producing regions by deducting shipping costs from assessed delivered ex-ship (DES) prices back to the point of loading (see graph).

Europe is expected to receive a large portion of US LNG given the region’s relative proximity to the Gulf Coast, where the bulk of supply will be produced, but this trend is likely to be gradual as US liquefaction capacity will ramp up steadily out to 2020.

By the end of 2016, Sabine Pass Trains 1 and 2 will be in operation and, by 2017, another three trains from Sabine and Cove Point could start up. Up to five new trains could come online at Cameron, Freeport and Corpus Christi by the end of 2018, with another four trains from Freeport, Corpus Christi and Sabine Pass due online in the following year.

While sellers such as Cheniere or a tolling customer such as Spain’s Gas Natural Fenosa will likely intend to sell outright spot cargoes to the highest netback market, which could be South America or the Middle East, the option for placement of cargoes into Europe will be valuable as traders attempt to re-balance oversupply.

Significant LNG import capacity and liquid trading hubs makes Europe an ideal destination for spare cargoes that cannot find a home elsewhere and the continent is widely considered to be an LNG market of last resort for this reason. However, US exporter Cheniere has lined up two supply deals into Europe on a delivered basis to portfolio companies EDF and ENGIE.

Despite no arrivals into northwest European markets so far, US LNG continues to influence liquidity and trading at the key NBP and TTF gas hubs. The depth of liquidity at both hubs makes them a key venue for future off-takers looking to hedge volumes forward, even if Britain and the Netherlands will not be the final destination for many of the cargoes.

In the gas year to-date, far curve liquidity – including trade of calendar year contracts beyond the front year and seasonal contracts beyond the second forward season – in the over-the-counter market is up by 74% at the Dutch TTF and 43% at the British NBP.

Future US export capability has also impacted the shape of the far curve. According to ICIS trade data, the Calendar Year ’19 contract at the TTF has traded at a discount to Calendar Year ’18 on a number of occasions since late June. The backwardation on the two products peaked at €0.075/MWh at the end of August and one source said the development was driven by traders hedging LNG volumes forward on the curve coupled with a drop in liquidity in recent months which served to amplify the effect of this selling on prices.

The source said the recent backwardation would likely be fleeting, but US LNG is set to continue to affect far curve trading in this way, if only in fits and starts.


Forward price signals at the NBP and US Henry Hub suggest the economics of shipping US LNG to Europe this winter have deteriorated since the start of July. On 6 September, Q4 ’16 at the NBP held a $2.06/MMBtu premium to the average price of October-, November- and December-delivery futures at the Henry Hub, down by 18% compared to 1 July.

For Shell – the only off-taker currently lifting long-term contractual cargoes from Sabine Pass – this spread would not be sufficient to recoup all shipping, liquefaction tolling and feedgas expenses although these may considered to be sunk costs for such a large portfolio company as Shell.

The more important question continues to be how competitive prices in Europe are against markets in South America and the Middle East, which have so far proved more economically viable. That said, the supply shortage in Britain as a result of the outage at the Rough storage facility could result in volatile price spikes later in the winter if temperatures prove to be particularly harsh. Mainland European storage sites may be the first port of call for Britain, but there could be opportunities for LNG sellers as well if the price is right.


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