US LNG production ramp-up likely to help ease summer competition between Europe, Asia

A ramp-up of new US LNG production capacity could help ease the potential competition for cargoes between Europe and Asia, even as market participants focus on summer procurement activity in South and Southeast Asia.

The pace of European withdrawal from inventories is expected to leave levels near 40% or below in spring after weaker-than-expected generation from renewable energy sources, such as wind, earlier this winter.

Coupled with the cut in Russian pipeline gas supply via Ukraine, lower inventory levels in Europe would mean greater competition for LNG cargoes between Asia and Europe as European participants look to fill storage before the September deadline.

The loss in Russian gas to Europe implies an additional 12-15 cargoes per month, although summer cargo requirements would depend on the inventory level at the end of March.

Europe's purchasing activity stands to coincide with summer LNG requirements in South Asia and Southeast Asia.

Higher global prices could impact India's cargo procurement for summer, a source based in Singapore said.

"While some countries may not have the option to switch fuels in this region, India may not buy cargoes above a certain price in the spot market," the source said.

However, end-users may need cargoes to meet peak load requirements, sources said.

"While the spread to Northeast Asia is already narrow, it could tighten," the source said.

Market participants are closely watching the summer-winter backwardation that would closely reflect demand-supply dynamics after spring, sources said.

With a swifter ramp-up of LNG production in the US, the backwardation has flattened.

The present backwardation between JKM derivative assessments for Summer 2025 and Winter 2025 contracts was near 19.2 cents/MMBtu on Jan. 16 as against 45 cents/MMBtu on Jan. 8, according to S&P Global Commodity Insights data.

A Middle East-based trader said a flat price structure is the consensus for now and that he was not sure whether the backwardation would last.

"Asian players who have bought US contracts will also look to optimize and send to Europe," the trader said.

Increasing production from the Plaquemines and Corpus Christi 3 projects would help bridge Europe's demand gap, sources said.

According to Commodity Insights data, three cargoes have loaded from Plaquemines LNG while a fourth cargo has already reached the terminal. Corpus Christi is expected to produce its first cargo in the January-March quarter.

Market participants expected that by the end of 2025, Corpus Christi and Plaquemines LNG would be able to produce more than 20 cargoes each month on a cumulative basis.

Asian discount to Europe

While the arbitrage economics to bring US cargoes to Asia has been negative for a while, Asian LNG prices are now seen at flat or discounted to Northwest Europe.

Platts assessed JKM, the benchmark spot price for LNG cargoes delivered to Northeast Asia, at $13.397/MMBtu for March on Jan. 16. The price was at a discount of 41.3/MMBtu cents to Dutch TTF for March during the Singapore close, according to data by Commodity Insights.

On Jan. 16, the JKM for March was 33.3 cents lower than the Northwest Europe Marker, which is the LNG price for spot cargoes delivered to Northwest Europe.

The arbitrage economics show that Middle East cargoes could still be attracted to Northeast Asia with a positive arbitrage of 6 cents and 35.5 cents for South Asia.

The forward curve for JKM and Northwest Europe Marker on Jan. 16 showed the summer spread of JKM-NWE at 17.9 cents and the winter spread at 67.5 cents/MMBtu, reflecting the tough competition for cargoes in summer as European buyers fill storages to the mandatory levels of 90%.

Role of US LNG in Asia

US LNG's role in Asian markets will gain significance in 2025 due to the increasing number of contracts signed by Asian importers and uncertainty around the incoming President Donald Trump's trade policies.

If Trump continues pushing for higher tariffs to balance trade deficits, LNG is likely to be one of the main bargaining chips and Asian countries will look to boost US LNG imports.

This could incentivize US-Asia flows despite unfavorable arbitrage economics and could add some premium over access to US LNG while reconfiguring trade flows for other suppliers.

Chinese LNG importers in particular will be impacted.

Unlike in 2018-19 when Chinese buyers procured US LNG exclusively on a spot or short-term basis, this time around, several sales and purchase agreements signed by Chinese buyers are beginning to quickly ramp up deliveries, according to Commodity Insights' analysts.

"Contracts signed between US and Chinese companies will amount to 2.9 million mt/year in 2025, more than doubling to 6.2 million mt/year by 2026," the analysts said.

China could also impose countertariffs on US LNG, as it did during the last trade dispute.

"In the event of Chinese countertariffs, US cargoes could be swapped out to other markets, but this would likely have ramifications on the global market as trade flows rebalance, including the possibility that US-sourced cargoes could trade at a discount to regional benchmarks as they're forced to seek new homes," Commodity Insights said.