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US LNG tankers to Europe to see a bleak outlook starting June: traders

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US LNG tankers to Europe to see a bleak outlook starting June: traders

Highlights

Coronavirus-caused industry shut-ins erode EU LNG demand

Elevated US gas prices result pressures US offtakers to Europe

907 million mt/year of US liquefaction capacity

London — With continued support in US Henry Hub natural gas prices reaching near parity with European gas benchmarks, Europe is set for far less US LNG imports starting in June, traders argue.

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LNG prices have collapsed globally, as the fallout from the coronavirus continues to destroy demand in the fuels's most significant geographic markets.

This already challenging situation for US LNG offtakers was compounded on April 20 when US oil prices dipped into negative territory. This drop in the value of domestic oil triggered concerns over the future availability of associated gas, which saw the NYMEX Henry Hub Future price for May jump more than 17 cents in one day.

Domestic gas prices in the US have subsequently remained relatively elevated since then, resulting in very tight to negative economics for US LNG offtakers.

Traders expect a diminishing fleet of US LNG tankers to Europe as a result.

"I think that we have the same view as most in the market," a German gas trader said. "We will still get LNG in May and June -- Qatar is looking of an outlet for some cargoes -- but after June there could be a lot less. We think that there will be less LNG from the US."

Offers into Northwest Europe for June delivery remain at TTF minus 10 cents/MMBtu, with bids heard as low as TTF minus 30 cents/MMBtu. However, these bids were mostly regarded as opportunistic.

While Henry Hub prices are finding renewed support, the prospects for any support in European gas prices remains bleak as demand faces growing pressure from industry shut-ins.and government lockdowns.

"The LNG outlook in Europe clearly is not bright," a second German gas trader said. "This is possibly the most bearish outlook it could ever be. Oversupply, low demand, coronavirus, shut-ins. But we certainly will see less LNG from the US."

Though due to several US cargo cancellations for June loading, it is anticipated the delivered price in Europe for H2 June could be more supported amid lower availability, compared with H1 June delivery, helping European gas prices to recover.

With regards to the depreciation of the JKM, it was expected Nigerian volumes could mostly head to Europe over the summer, with traders anticipating more sell tenders over the coming months out of Nigeria LNG, following last week's May loading tender.

"West African volumes will keep finding homes in Europe," said the second trader, explaining this in itself paints a bearish picture for the Atlantic market in the coming months

All three key LNG hubs have now converged to near parity.

At the London close Tuesday, the May Henry Hub contract was trading at a premium of 4.5 cents/MMBtu over the JKM assessment Tuesday and a slim 0.06 cent/MMBtu discount to the Platts DES Northwest Europee assessment.

Global LNG prices are not expected to recover significantly before next winter, further pressuring North American project developers that are trying to advance new liquefaction capacity at the same time the coronavirus pandemic is weakening demand, the International Gas Union said Monday.

An IGU report highlighted 907 million mt/year of liquefaction capacity that has been proposed and has yet to be sanctioned by a final investment decision.