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Further downside available for Dutch TTF hub as traders eye LNG netbacks for direction

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Further downside available for Dutch TTF hub as traders eye LNG netbacks for direction

Highlights

USGC netbacks seen as price floor in current environment

Limited downside available in Asia; JKM/TTF may widen

Henry Hub upside limited on production, storage levels

London — Further price falls on the key Dutch TTF natural gas hub may be seen in the near term, with current hub pricing above the delivered cost of a US LNG cargo into Northwest Europe, but potential downside in Asian LNG pricing may be harder to come by, an analysis by S&P Global Platts showed.

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With the current low price environment seen across Europe, traditional contractual price floors -- such as the coal-switching price -- have lost relevance recently, with the cost of US LNG delivered into Northwest Europe now seen as the key support level.

However, the netback for an LNG cargo produced on the US Gulf Coast delivered into Northwest Europe for February delivery from Cheniere's Sabine Pass (115% Henry hub including shipping) stood at $2.974/MMBtu on Tuesday, according to Platts price data, still over half a dollar below the TTF equivalent contract of $3.477/MMBtu (Eur10.775/MWh).

European hub prices fell back in early Wednesday trade after having rallied during Tuesday's session as temperature forecasts were revised higher for the near term after indications on the previous day showed below-average temperatures for the bulk of the first half of February.

However, downside offered from the US Gulf Coast netbacks may be harder to come by for Asian markets, where the JKM price has been largely in line with the netback price.

Indeed, the JKM March contract was assessed at $3.950/MMBtu on Tuesday in comparison to the USGC-Japan/Korea netback of $3.754/MMBtu, with the gap between the two below 20 cents as a result.

Other projects in the US Gulf could have a little more wiggle room, as the gas is brought in by the contract holders, rather than being benched against Henry Hub.

Platts data showed that prompt feedgas costs into projects like Cameron and Freeport were last seen to be at $1.886/MMBtu and $1.908/MMBtu respectively.

LNG market sources also reported that much of the US output has been offered into Europe in either year-long or summer-long strips of approximately one cargo a month.

Indicative pricing for these cargoes has been reported at TTF minus $0.20/MMBtu for the Cal 20 tranches, while summer cargoes were shown at TTF minus $0.40/MMBtu over the six-month delivery period.

While market sources have not reported the conclusion of any deals around these cargoes, it indicated that sellers are bearing on the landed price of LNG in Europe down the curve.

Further downside to US gas prices?

The NYMEX Henry Hub month-ahead contract has been trading near four-year lows since the beginning of 2020, and has remained below the $2/MMBtu mark for the past week.

US gas pricing has come under pressure on the back of solid US gas production in addition to robust storage levels, meaning any potential recovery in the Henry Hub price may be difficult to come by.

According to data from S&P Global Platts Analytics, US gas production for the January 1-28 period averaged 91.375 Bcf/d (2.587 Bcm/d), an increase of 4.8% on an annual basis after US production of the commodity in 2019 rose 11.5% year on year and in 2018 by 10.8%.

Moreover, storage stocks in the US stood at 2.947 Tcf at the end of Week 3, well above five-year average for the time of year of 2.378 Tcf and further ahead of the 2.370 Tcf seen at the same time in 2019.

LNG feedgas levels have increased as more trains in the US come online, and hit a fresh record high of 9.390 Bcf during Tuesday's gas day, but still do not soak up the large increase in production levels.

US LNG feedgas stood at a total of 5.704 Tcf in 2019, but US gas production rose by 17.719 Tcf between 2015 and 2019, allowing for a more comfortable system in the process despite higher pipeline gas exports to Mexico and a drop in reliance in gas imports from Canada.

As a result, Henry Hub pricing is due to stay below the $2/MMBtu mark for the near term, with the March and April contracts assessed at $1.927/MMBtu and $1.961/MMBtu, respectively, on Tuesday, before being set to rise to $2.020/MMBtu in May and to $2.086/MMBtu in June.