Price spreads could support US LNG into Europe later in 2019

LONDON (ICIS)–Current forward price curves indicate that the profitability of US LNG spot exports into Europe will increase each month until the end of the year.

Forward curves are not necessarily a good indication of where market prices will outturn.

But greater seasonality at European gas hubs when compared to the US Henry Hub mean the Dutch TTF Q4 2019 prices is currently trading at a premium that could cover the long-run US LNG price which includes feedgas, the cheaper liquefaction costs, shipping and regasification costs.

This could offer some US sellers the opportunity now to lock in spot LNG sales for delivery later in 2019, although the majority of spot LNG is sold on a more prompt basis.

While a majority of US LNG has so far been sold under long-term or short-term contracts, spot remains an important element.

US LNG into Europe passed 1m tonnes in December 2018 as US exports ramped up.

Imports to Europe then fell on US plant outages and competing East Asian demand before rising as the mild East Asian winter limited demand for spot cargoes.

While some in the market focus on price differentials between Europe and Asia when analysing the flow of US LNG, the role of Americas demand in the second and third quarters is also an important factor.

Demand in May from Argentina, Brazil, Chile and Mexico reached 2019 highs in every case.

While total Americas imports were not as large as in previous years, these markets still offer a more local option and reduced shipping distances/ costs in most cases when compared to Europe, even if prices are lower.

The price chart illustrates the importance of individual liquefaction fees in terms of overall profitability with a range agreed between $2.25/MMBtu and $3.50/MMBtu.

Some sellers may focus on short-run costs, at least in the short term, and consider liquefaction fees a sunk cost as they are included in take-or-pay contracts.

Monthly US LNG exports are forecast to double between now and early 2021, according to the LNG Edge supply forecast.