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Europe was favored destination for US LNG in November amid activity ramp-up

Highlights

Incentives include proximity, ability to hedge

Arbitrage suggests December could continue trend

Houston — About half of the cargoes that were delivered last month from US LNG export facilities landed in Europe, reflecting a shift in trade flows that appeared to favor proximity, liquidity, and the ability to hedge over traditionally more robust end-user markets in Asia, S&P Global Platts Analytics data show.

That Europe has become a home for US LNG beyond just a means to balance the global supply market has taken on added importance amid the ongoing trade war between Washington and Beijing.

Heading into 2020, those trends are expected to continue, with the UK, France, Spain, Portugal, Poland, and the Netherlands absorbing more US LNG, especially from the Gulf Coast, as China remains largely cut off because of tariffs, and demand wanes in Japan because of increased nuclear generation.

In the short-term, South Korea could be a bright spot, amid the shutdown of 15 coal-fired power plants through the end of February.

The month-on-month ramp-up in deliveries to Europe was largely driven by the UK, France, and Spain, Platts Analytics data show. This may partially be accounted for by the recent start of commercial offtake contracts with Centrica and EDF at Cheniere Energy's Sabine Pass Train 5 and Corpus Christi Train 2. And, despite marginally better netbacks into the Platts JKM, the benchmark price for spot-traded LNG in Northeast Asia, these buyers may prefer to bring gas into their home markets, for which they already have regasification capacity and downstream commitments.

Surprisingly, US Gulf Coast LNG netbacks from JKM traded at a roughly 20 cent/MMBtu premium during October, when near-term spot LNG sales would have been locked in, and the forward curve strongly favored the JKM in September, when November loadings would have been finalized. But, for more of November, the USGC netback to the Dutch Title Transfer index, or TTF, was at a premium to JKM, which might encourage a further ramp-up in December deliveries into European markets over Asian markets.

Overall, 33 of 67 cargoes that landed in November from major US LNG facilities were shipped to Europe, while 26 ended up in the Asia-Pacific region and eight went to the Americas. In October, the Asia Pacific took 18 US cargoes, versus 15 that landed in Europe, Platts Analytics data show. The difference between the two months showed not only the flip in preference toward Europe, but also the magnitude in terms of the increase in the number of cargoes delivered.

Five of the six major liquefaction facilities operating in the US are expected to see high utilization in the weeks ahead, as global demand for the power plant and home heating fuel picks up. The bulk will come from Cheniere's two facilities, which accounted for more than 70% of all domestic LNG feedgas deliveries when the US hit a record of almost 8 Bcf/d November 28.

The sixth facility, Kinder Morgan's Elba Liquefaction in Georgia, had yet to ship its first cargo as of Wednesday, and neither the operator nor the sole offtaker, Shell, has said when it would.

An unladen LNG tanker, Maran Gas Lindos, was positioned in the Atlantic off the Georgia coast awaiting orders Wednesday, according to cFlow, Platts trade flow software.

-- Harry Weber, Harry.Weber@spglobal.com

-- Ross Wyeno, rwyeno@spglobal.com

-- Edited by Valarie Jackson, newsdesk@spglobal.com