February shipments of LNG directly into established European natural gas market areas have fallen 29% from December to 4.23 million mt (or 5.795 Bcm of natural gas equivalent), in contrast to high regasification levels in Europe, data from S&P Global Platts Analytics shows.
Regasification into UK, Belgian, Dutch, French, Spanish and Italian grids, while presently showing a 20% slowdown month on month from the 9.026 Bcm delivered in January, remains considerably higher on year, with LNG terminals delivering into these markets increased output by 46% compared with the entire previous gas winter, with metered allocations amounting to 43.612 Bcm since October 2018.
This fall comes at a time when the industry has been reporting major global growth in production.
In the physical LNG market, market sources had previously reported cargoes being sold at 92% of the British NBP virtual trading hub back in January. According to Platts NBP assessments, the average month-ahead contract price plummeted by 15.5% in between LNG delivery windows, with averages between mid-December and mid-January and mid-January to mid-February of 63.33 p/th and 53.51 p/th, respectively.
This added to an already heavily bearish market which has fallen from 77.875 p/th peak in mid-September, with the long-term trend since then likely to have eroded regasification profit margins and deterred LNG physical purchases.
The flood of LNG which arrived into Europe as winter began was spearheaded by demand from the UK, and has since responded to demand-led cues, with the current differential between the summer and winter demand in the UK in excess of current LNG sendout. Average winter demand in the UK is 276 million cu m/d, while last summer's demand averaged 179 million cu m/d. LNG sendout into the UK gas system has averaged 43 million cu m/d so far this winter delivery period.
Should demand weaken further for LNG cargoes and send out remain effectively the marginal supply, pivotal UK LNG deliveries could come to an abrupt end by the end of the gas season.
DEMAND DRIVEN MARKET
Seasonal European natural gas prices rose to multi-year highs in during Summer 18 delivery, driven a combination of spot buying in a gas short market and seasonal hedging for the current winter in the aftermath of the so-called "Beast from the East" weather system, which resulted in a spot market price spike back in March.
The mature UK gas market was hugely influential in the realization of the price peak in mid-September last year. Following the expiry of long-term pipeline transport contracts which historically supplied the UK during winter, the import-dependent country suddenly found itself having to pay a much higher price to order to attract the necessary volumes for winter demand. This demand was ultimately met by LNG.
Climbing LNG prices in Asia in late summer also helped inflate the price for the NBP Winter 18 contract, as a higher premium was commanded in order to attract cargoes away from the Pacific. As the NBP, along with the TTF, trades much higher volumes than other European hubs, European gas prices across neighboring hubs also rose in tandem as the closely-connected markets reflected the overall sentiment for European gas. Other premium priced European hubs were also now also attractive to LNG producers, with Italy in particular obtaining huge volumes prior to winter delivery.
Decreasing LNG regasification and imports could therefore signal a demand driven market, where European markets attracted LNG supplies as and when they were required. Now with European prices falling close to levels prior to the buying rush as the procured LNG has been delivered, a return to a previous state of being for the market could now be at hand.
Indeed, profit margins for front two NBP quarters for summer delivery are now rapidly tightening compared to the Asian LNG benchmark, the JKM. Netbacks from the US Gulf Coast during Q2 at current shipping rates stand at $5.232/mmbtu for the NBP and $5.199/mmbtu for JKM, while in Q3 the JKM trumps the NBP, assessed at $5.472/mmbtu and $5.61/mmbtu respectively.
