Favorable spread may encourage further US LNG cargoes to Europe in H2 February

London — The spread between the LNG US FOB Gulf Coast Marker for the first half of February (GCM H1 Feb) and the DES Northwest Europe Marker for delivery in the second half of February (NWE H2 Feb) suggests US LNG spot cargoes could reach Europe later this month as Asian markets will be less profitable.

However, as Europe's gas market remains volatile, players may be willing to wait for clearer price signals before taking action.

According to S&P Global Platts Analytics data, the US FOB GCM H1 Feb. stood at a $1.710/MMBtu premium to NWE H2 Feb on Jan. 29, which was 48 cents/MMBtu higher than the $1.23/MMBtu needed to ship a US LNG cargo across the Atlantic to Europe.

That compares with the $3.081/MMBtu premium of the US FOB GCM H1 Feb. to the Asian JKM H1 March, which was 69.9 cents/MMBtu lower than the $3.78/MMBtu needed to ship an LNG cargo from the US to Asia.

With the JKM for March contract assessed by Platts 21.8 cents/MMBtu lower at $8.738/MMBtu on Feb. 1, Europe became even more attractive than Asia.

Cautious approach

Europe's gas forward markets were seen starting the Feb. 2 trading day in gap down if compared with Jan. 29 closing values, with players attributing the fall to increased LNG deliveries to Europe during February.

While some traders said those unexpected cargoes were spot supply triggered by favorable US FOB GCM/NWE spreads, others remained skeptical.

"To me it feels like the market has overreacted," a CEE-based gas trader operating in South Europe's gas markets said. "It is just a few ships from the US. And I heard that most of them are portfolio cargoes, hence sunk costs," he said.

"The thing is that, in January, portfolio cargoes were being redirected to Asia," a UK-based gas trader said. "Now they are remaining in Europe."

"However, I do not think that Europe will be inundated with LNG given these prices. Spreads can still change. We might see some US spot cargoes reaching Europe in April possibly. But it is still too early to say," he said.

Atlantic traders said there was the possibility there could be some optimization late February to send volume to Europe that was once bound for Asia, releasing vessels sooner and, therefore, allowing a vessel to make two deliveries to Europe as opposed to just one to Asia.

Optimization

"With the arb where it is, it [optimizing to Europe] is definitely a possibility," a Switzerland-based trader said. "Cargoes loading in H2 Feb onwards should be targeting Europe anyway," a London-based trader said. "Asia [buyers] need to pay higher to attract Atlantic cargoes with TTF where it is now."

The Gaslog Georgetown -- a Cheniere charter -- recently changed course in the Atlantic to head towards Europe, according to cFlow, Platts trade flow software, having originally headed south from the US Gulf after departing on Jan. 17.

Despite that, it was expected that the opportunity would not last long as any volume diverted from Asia would eventually balance the market and provide support to the JKM.

However, traders might see this as a good opportunity to avoid delays through the Panama Canal, as well as capitalizing on the recent movements in the shipping market.