European LNG prices reach five-month high as global competition heats up

European LNG prices rose to a five-month high as ongoing geopolitical risk factors and tightness in European LNG supply intensified competition with other global demand hubs, market sources said.

Platts, part of S&P Global Commodity Insights, assessed the DES Northwest Europe and Mediterranean markers for July at $10.445/MMBtu May 21, up 33.4 cents/MMBtu on the day, and at the highest levels seen since Dec. 27, when it was at $10.756/MMBtu.

At the same time, Platts assessed the East Med marker at $10.645/MMBtu, also the highest seen since Dec. 27.

LNG prices across Europe are under pressure, with market participants looking to compete for cargoes against Asia. Heat waves in Asia have sparked stronger seasonal demand, creating sturdy competition between the European and Asian LNG supply.

In comparison, JKM also recently reached a price high of $11.498/MMBtu on May 20(opens in a new tab) -- the highest since Dec. 18 -- before falling slightly to $11.485/MMBtu May 21, Commodity Insights data showed.

Although Europe is comfortable with high gas inventories, European LNG supply has constricted week on week. In both the NWE and Mediterranean, LNG traders saw sellers with the flexibility in taking cargoes toward Asia over Northwest Europe and suggested that prices in Europe need to increase further to attract selling interest.

"No expectation [for demand] to pick up, people cannot pay, [Europe is] completely out of price," an LNG trader said.

LNG dynamics

While natural gas prices have strengthened recently amid continued geopolitical uncertainty and a tightening supply environment for both pipeline flows and LNG imports into the continent, European natural gas prices have yet to reach highs touched in mid-April.

Despite an uptick in planned maintenance on the Norwegian Continental Shelf, which analysts at Commodity Insights expect will reduce flows from these assets by 11% month on month, Norwegian gas nominations have remained relatively strong averaging 300.5 million cu m/d in May so far basis data from offshore pipeline Gassco.

Although most of the ongoing maintenances on the Atlantic side are planned, the market is still wary of any potential extensions which could put pressure on the market going into the third quarter, where injections are expected to be stronger.

"There is a lot of maintenance in the North Sea...Just because [the maintenances] are planned doesn't reduce the potential impact if things go wrong," an Atlantic-based trader said. "With a relatively tight LNG market, this skews risk to the upside."

Narrow spreads

Historically as TTF prices increase, LNG-TTF spreads would widen. However, LNG-TTF spreads have remained persistently narrow due to increased global competition for LNG, sources said. Traders pointed to a "new normal" with expectations that the spreads will stay narrow as European bids remain relatively strong to attract cargoes.

"I am bullish on LNG-TTF spreads, TTF seems to be lagging behind the [geopolitical] news," a second LNG trader said, adding that European prices were still falling behind those seen in Asia.

Platts assessed NWE LNG prices at a 17.5 cents/MMBtu discount to the TTF Dutch gas hub price. The discount has averaged around 41 cents/MMBtu this year so far, compared with the 2023 average of $1.70/MMBtu.

Similarly, East and West Med prices have been strong compared with TTF which has made it uneconomical to import LNG, pushing European and Med market participants to replenish supply on inland pipeline volumes.

"PVB [the Spanish gas hub price] has been strengthening the past few days which is indicating a tightening [LNG] market and that is the same in the East Med too," the second LNG trader said.

A Med-based trader said: "[The] market seems tight, and any news can push prices to spike."

"Pipegas has great activity, we have this LNG freeze, but pipeline gas is a more hot environment, especially with the narrow LNG-TTF spreads it makes more sense to buy on gas," another Med-based trader said.

However, the tight spreads were disincentivizing LNG flows into the continent as the prices, albeit high for European buyers, were unable to compete with the cargoes heading to Asia.

"The only ones that are buying is because they have a firm commitment or they really need it," another trader said. "Everyone is cancelling."

This is reflected in the low LNG imports into the continent accompanied with gas sendout levels from LNG facilities at multimonth lows.