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European gas prices exceed Asian spot LNG, shuts arbitrage

European gas hub prices have risen above the price of liquefied natural gas (LNG) on the Asian spot market in a rare occurrence that largely rules out arbitrage of LNG cargoes from the Atlantic to the Pacific basins.

The 951 feet Arctic Princess liquefied natural gas carrier waits for the first shipment from the Snoehvit LNG complex in the town of Hammerfest September 18, 2007. REUTERS/Wojciech Moskwa

Dutch and British month-ahead gas prices exceeded Asian spot LNG in April for the first time in four years. Asian LNG prices tend to be higher due to the huge demand there with few alternative supplies.

The switch in the price values is another twist in a unique year for the fast-expanding commodity as soaring production from new plants, much of it in the U.S. Gulf Coast, coincides with tepid demand from Asia, normally consumer of 75% of global LNG.

Month-ahead Dutch gas was $4.56 per million British thermal units (mmBtu) and the British equivalent was $4.48 per mmBtu by 1315 GMT on Monday, while Asian spot LNG for August was heard at $4.40 per mmBtu [LNG/].

The arbitrage, whereby Atlantic Basin LNG - including from the U.S., Russia and West Africa - headed for Europe instead travels the longer distance to Asia to fetch a higher price, has been largely closed for most of the year. That is because the spread has rarely exceeded the extra cost of shipping - broadly defined as a dollar per mmBtu.

Forward price curves moreover indicate the situation is unlikely to change until at least October.

When the Japan/Korea Marker (JKM) for the months of August, September and October is compared to the Dutch Title Transfer Facility (TTF) forward prices, the spread is below $1 per mmBtu. For October, it is 46 cents and was as low as 28 cents.

The JKM is a benchmark published by commodity pricing agency S&P Global Platts and Asia’s main LNG pricing benchmark for the spot market.

Dutch and British month-ahead gas prices soared this month in part due to a string of planned outages in Norway, although their 38% to 44% gains in the past two weeks have not fully reversed the prolonged 66% percent fall since last October.

The rise has, nevertheless, given a breather to European suppliers that had contracted to buy U.S. LNG by widening the spread with the U.S. Henry Hub gas price.

At one point last month the spread did not cover shipping costs.

With U.S. production the largest source of increased supply in the past year, Europe’s ability to absorb excess LNG is being tested. Europe has long been seen as the industry’s “destination of last resort” due to its flexible continent-wide markets.

Reporting by Sabina Zawadzki; Editing by Kirsten Donovan


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FEATURED COLUMNS

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-Adrienne Blume
Global LNG export capacity is expected to increase by 45% between 2017 and 2022, to more than 400 metric MMtpy, with 90% of the new capacity coming from sanctioned projects in the U.S. and Australia. By 2050, this capacity is anticipated to exceed 700 MMtpy. Regasification capacity is anticipated to increase even more sharply.
Executive Viewpoint: Back to production: Where we’re going, we don’t need pipelines
-Mark Casaday
What if a cost-effective way existed to extract and distribute natural gas, regardless of proximity to pipeline, and bring those assets back to production? What if the industry went in a direction that did not need pipelines? For those looking to monetize unproductive natural gas assets or bring unproductive wells back to production, it would be revolutionary.
Regional Focus:Australia to boost LNG exports despite domestic gas shortage
-Eugene Gerden
Australia is planning further increases in LNG production and exports over the next decade, despite quickly depleting reserves and a looming supply shortage in the domestic market.


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