LONDON (ICIS)--Margins for some US LNG exports turned increasingly negative this week according to the LNG Edge arbitrage calculator, as US Henry Hub gas prices jumped above $4.50/MMBtu.
US gas prices have risen steadily from around $3.00/MMBtu in September on low stocks but spiked this week on much colder weather which drove increased heating demand.
On Wednesday, the front-month December Henry Hub market was trading at over $4.50/MMBtu.
Henry Hub prices are referenced in contracts for US LNG offtakers, adding in a fee for transport to the LNG plant and a liquefaction cost.
Latest prices suggest that spot LNG sales to most global buyers would now lead to a negative margin, especially to those further away in Asia. This factors in a contract with a $2.50/MMBtu liquefaction cost and round -trip shipping economics.
Margins have been falling in recent months because of rising LNG shipping costs .
The numbers should be taken with caution as some LNG sellers will have long-term vessel charters and will not be exposed to volatile prompt shipping rates.
While some sellers may consider the cost of liquefaction as a sunk cost in the short term, which would improve their economics.
And some will be delivering into potentially more lucrative contracts rather than to the spot market.
But the trend of falling margins is clear, and is reflected elsewhere such as in Europe where higher gas prices and shipping rates have made reloads out of the region difficult.
It could also make it more difficult for any US buyers looking to offload positions to others in the market, on a Henry Hub basis.
Henry Hub hits four-year high
On Wednesday, the Henry Hub front month closed at its highest level since February 2014, and briefly threatened the $5/MMBtu barrier during morning trading.
Winter 2018/19 delivery contracts on the forward curve were also trading at above $4/MMBtu, although the spread between the March ‘19 and April ‘19 contracts was steep, at nearly $1.60/MMBtu.
The latest US weather forecasts from Radiant Solutions continue to show below average temperatures across the northeast and Midwest high demand regions through the next 10 days, although demand should peak before the weekend.
Attention will also turn to the Energy Information Administration’s storage report, due on 15 November for the week closing 9 November. Analysts predict that this report could see the last injection before the start of the winter withdrawal season.
1.2 million contracts trade
Trade on the Henry Hub hit a record level on Tuesday, according to Chicago-based exchange CME Group. More than 1.2 million futures contracts changed hands, around 200,000 more than during the previous most liquid session on 12 January 2018.
The surge in Henry Hub prices has arrived at the same time as a slump in the oil market , and driven the price floor and ceiling of the global gas market into a narrower range.
The Henry Hub price increase also arrives as the first LNG from Train 1 of the Corpus Christi LNG in Texas was produced.
A number of other US liquefaction facilities are scheduled to come online in the next 12 months, including Train 5 at Sabine Pass, and the first trains at Freeport, Cameron and Elba.