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Falling prices, high storage in Europe complicate US LNG contracting ambitions


TTF front-month dips to $17 in mid-January

European gas storage currently over 80% full

Germany, others look to FSRUs and spot gas

  • Author
  • J Robinson    Corey Paul    Stuart Elliott
  • Editor
  • Joe Fisher
  • Commodity
  • LNG Natural Gas

US LNG export developers could be facing a far less competitive contracting market in Europe this year as falling gas prices and high storage levels there cool EU nations' urgency for US supply.

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Over the past six weeks, prices at Europe's benchmark TTF gas hub have lost over half their value, with the front-month contract tumbling as low as the mid-$17/MMBtu area earlier this month, data from S&P Global Commodity Insights showed.

Tumbling gas prices in Europe come as concerns over supply rationing have eased in recent weeks, thanks largely to high gas storage levels and a spate of voluntary demand curtailments by end-users. According to data from Gas Infrastructure Europe, storage levels in Europe are now at just over 80% full as of mid-January -- a healthy inventory that compares with year-ago stock levels at closer to 45%.

"EU storage is on pace to exit the winter approximately 50% full, [twice] the levels last year, reducing the 2023 call on LNG," said Morgan Stanley lead analyst Devin McDermott in a Jan. 6 note to investors.

With Europe's gas market effectively on "safe" footing this winter, according to European Commission President Ursula von der Leyen, member nations' perceived urgency for US-contracted supply could ease this year.


In 2022, Europe took renewed interest in US LNG amid mounting supply concerns tied to Russia's nearly year-long war in Ukraine, and Russia's ongoing cut in gas pipeline exports to EU member nations.

Last year, European utilities and end-users signed on for over 9 million mt/yr in new long-term supply from US LNG exporters and developers -- stepping up supply commitments from 2021 when European buyers closed on supply deals totaling just over 6 million mt/yr, S&P Global data shows.

With many European countries still committed to carbon-reduction targets and other environmental goals, buyers there have been more reluctant to sign on for long-term LNG supply, making last year a standout for US LNG contracting in Europe, despite the continent's stepped-up supply concerns.

"What's clear from the current wave of contracting is that European utilities are still comfortable paying an LNG spot price because they don't want to have that long-term contract," Ross Weyno, LNG lead quantitative analyst for S&P Global, said recently.


As Europe's gas prices continue pulling back from record highs at over $90/MMBtu last year, and with continental storage in robust territory, many European buyers could now be looking to FSRUs and spot gas purchases as a bridge to Europe's eventual low-carbon future.

In Germany, for example, long-stalled ambitions to diversify the nation's gas supply took on new meaning following Russia's invasion of Ukraine and its subsequent cut to pipeline exports. Already this winter, Germany is preparing to begin commissioning work on its first floating LNG terminal, with another five import projects already under development.

Even in Europe's spot gas market, the pull on US LNG could wane this year -- especially as the 2022 winter supply crunch continues to ease.

Already this month, the percentage of US cargoes targeting European destinations has pulled back modestly as demand from end-user in East Asia begin picking up amid a nascent reopening in China. According to S&P Global's latest export data, about 64% of US cargoes already exported this month are destined for Europe -- down from over 70% in fourth-quarter 2022. Exports to Asia, meanwhile, have ticked up. In January, approximately 29% of US cargoes already exported are destined for countries in East Asia, including China, Indonesia, Japan, Singapore, South Korea, Taiwan and Thailand. In Q4, Asia's percentage of US exports averaged just 22%.

Looking ahead, as China's economy continues to open, the country could see an increase in LNG demand this year, along with other imported fuels.

"Historically, China has been an active buyer of uncommitted spot LNG. Last year, however, China's imports were roughly equal to its ... contracted supply. Looking into 2023, we see a 10 mt (+16%) rise in Chinese demand [year on year]," Morgan Stanley analyst McDermott said in the Jan. 6 investor note.