US LNG exports disrupted as producers capitalize on domestic price spike

The surge in US natural gas prices has prompted several tolling contract offtakers to cancel US LNG export volumes, choosing instead to sell into the higher-priced domestic market as spot values skyrocketed.

US NYMEX February Henry Hub futures reached $6.954/million British thermal units on Jan. 27, driven by a cold snap and upstream production freeze-offs. But Henry Hub cash prices soared even higher -- topping $30/MMBtu for Jan. 27 flows before falling by more than 50% for Jan. 28.

The price spike has led to a significant reduction in feedgas flows to major Gulf Coast LNG producers as tolling contract offtakers were reported to be canceling export volumes to capitalize on higher domestic prices.

"Conceptually, cancellation would be pretty easy for offtakers having tolling agreements as the buyer handles the feedgas and offtakes the LNG," a Mediterranean-based trader said.

Henry Hub cash prices were still trading around $9/MMBtu on Jan. 28, according to Intercontinental Exchange intraday data. Spot prices remained much higher in some regions after soaring in recent days to past $100/MMBtu in places like New England.

Reductions in US LNG output were spread across the eight major liquefaction plants operating in the country. On the East Coast, Elba Island LNG in Georgia and Cove Point LNG in Maryland shifted to supplying the domestic grid by importing cargoes or by regasifying LNG volumes in their tanks.

A Northwest Europe-based analyst expects the cancellations to be as many as 15 cargoes.

 "It could've been way worse," the analyst said. "You have a net loss for sure, which is no surprise."

Some liquefaction facilities were also heard negotiating with lifters for voluntary cancellations and profit-sharing arrangements, while most liquefaction contract offtakers reported no cancellation requests from liquefaction facilities.

"We haven't been informed of any request to adjust US loadings, and our January loadings are all going well so far," an Asian importer said.

Total feedgas deliveries to US liquefaction facilities were scheduled to rebound about 17.6 billion cubic feet/day on Jan. 28, up from nearly 14.8 Bcf/d the previous day and a low of about 11.3 Bcf/d on Jan. 26, S&P Global Energy CERA data showed.

The deliveries, which were based on nominations for the morning cycle that could later be revised, would remain below record highs exceeding 20 Bcf/d earlier in January.

Sendouts from US LNG import facilities, meanwhile, have hit a nine-year high, primarily led by Elba Island.

Multiple cargoes loaded in Trinidad are also headed to the US. The LNG tanker Paris Knutsen, loaded on Jan. 23 and arrived at Elba Island on Jan. 28, according to S&P Global Commodities at Sea data.

Another LNG tanker the British Listener, was expected to arrive Jan. 29 at Cove Point.

A third tanker, the Nantes Knutsen, was bound for the Northeast market, with the St. John LNG import terminal in New Brunswick, Canada, listed as its destination and an expected arrival date of Jan. 31, after its original plan to sail to the Netherlands was altered on Jan. 21.

Supply concerns

The disruption has raised concerns about supply to Europe, with some market participants expecting Northwest European storage to reach unsustainable lows by the end of March.

European gas storage was 44.23% full on Jan. 26, the lowest seasonal level seen since 2022, according to Gas Infrastructure Europe data.

However, Asian buyers remained largely on the sidelines despite the destocking caused by the recent cold snap.

The market is expecting a narrowing spread between cargoes delivered to Southeast Asia and India compared to the JKTC region, as higher European prices have made it easier for Middle Eastern and Australian producers to redirect volumes to the Atlantic basin.

"If the Middle East and Australian cargoes flow to Europe, India prices will definitely be higher," a Singapore trader said. "But this depends on how high the bids are since we haven't seen any Indian or Southeast Asian tenders the past week."

One cargo loaded from Western Australia on the Methane Julia Louise is pointing towards the Cape of Good Hope, while another cargo from Eastern Australia via Maran Gas Hector is also heading East towards the Americas.

Despite the tighter supply, Asian importers remained muted due to sufficient inventory levels and weakened downstream demand. Some were heard capitalizing on the backwardation by swapping near-month cargoes for forward shipment cargoes, while traders focused on unwinding arbitrage positions and reselling cargoes to Europe.

The European LNG and gas markets also remained relatively calm despite the cancellations, a trend attributed to weak demand from Asia, multiple sources said.

US turndown dynamics

Two main factors could explain the price-driven US turndowns, CERA LNG analyst Ross Wyeno said. The primary driver is likely freeze-offs upstream of the US LNG plants restricting feedgas deliveries, making feedgas procurement in the cash markets prohibitively expensive, he said. The other, he added, is plants shutting down production and selling gas back to domestic hubs to capture the higher US spot prices.

CERA analysts expected a modest overall impact on the global supply balance as a result of the reduced US LNG output.

 "This is a day-to-day response to weather events first and foremost, and cash price differentials to month-ahead settlement prices, which creates a lot of potential value for people to optimize their gas supply," Wyeno said.

"I think that this weekend will be the important one to see if feedgas drops again," a London-based analyst said.

Another trader agreed with this sentiment: "The weather is not that cold anymore, and cash is probably lower now as well," the trader said.

Another rally in domestic gas hub prices and resulting cancellations could have a ripple effect on landed LNG prices in Atlantic and Asia.

Platts, part of S&P Global Energy, assessed DES Northwest Europe marker for March delivery at $12.037/MMBtu Jan. 28, or at a discount of 90.5 cents/MMBtu to the March TTF hub futures price. The Platts JKM benchmark price, for the same month was assessed at $11.674/MMBtu.