LNG is stepping up to solve Europe gas woes, but at a price
Concerns that Europe is facing a natural gas supply crunch this winter are overblown, with the liquefied natural gas (LNG) market already stepping up to avoid any shortfall, albeit at higher prices.
European natural gas prices climbed to the highest level in two years last week, with the benchmark front-month contract at the Dutch TTF hub reaching €49.03 per megawatt hour (MWh) on Nov. 22, equivalent to $14.97 per million British thermal units (MMBtu).
Prices have rallied about 40% since mid-September amid fears that the remaining Russian pipeline supplies to Europe will be halted, or face further curtailment.
New U.S. sanctions on Russia's Gazprombank, the financial institution some remaining European importers of Russian gas use to process payments, have also raised concerns about the future of supply.
Throw in some early cold weather and the expiry at the end of the year of the transit agreement for Russian gas through Ukraine and it's hardly surprising that prices have been rallying.
But there is little sign that Europe is about to run short of natural gas, and the global LNG market is already adjusting to reflect the current dynamics.
Europe's November imports of the super-chilled fuel are on track to rise to the highest since February, with commodity analysts Kpler tracking arrivals of 9.16 MM tonnes (t). This is up from 7.56 MMt in October and 6.37 MMt in September, which was the lowest monthly total in three years.
The increase in imports is largely being met by increased shipments from the United States, the world's largest LNG exporter and the swing supplier between the Atlantic and Pacific basins.
Europe is on track to import 4.32 MMt of U.S. LNG in November, the most since February and up from October's 3.13 MMt, according to Kpler data.
In contrast, Asia's imports of U.S. LNG are estimated to drop to 2.19 MMt in November, the lowest since march and down from 3.21 MMt in October.
Asia's overall imports of LNG are expected to decline in November to 23.13 MMt, the lowest since June and down from 24.39 MMt in October.
Price sensitivity. The drop is largely because of weaker imports in the South Asian nations of India, Pakistan and Bangladesh, with India, the fourth-biggest buyer in Asia, expected to land 2.21 MMt in November, down from 2.36 MMt in October.
India is among a group of Asian buyers that tend to be price sensitive, and the recent rise in spot LNG prices will act as a brake on the country's demand.
Spot LNG for delivery to North Asia rose to $14.60 per MMBtu in the week to Nov. 22, an 11-month high and up from $13.60 the prior week. The price has been rising steadily in recent months and is now up 76% from its 2024 low of $8.30 per MMBtu.
However, it's still short of peak in 2023 of $17.90 per MMBtu, reached in late October as utilities in Asia stocked up ahead of winter.
The current forecasts for winter in North Asia are for a colder season than last year, which may serve to bolster demand for LNG, especially in top importers China, Japan and South Korea. Coupled with the likelihood of higher European demand for LNG, it's likely that spot prices will continue to rise.
The higher prices will increasingly crowd out the more price-sensitive buyers, such as India. But this isn't a sign that the market is under stress, rather it shows that it's working as it should.
The views expressed here are those of Clyde Russell, a columnist for Reuters.
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