European gas, LNG market eyes Plaquemines exports start on Russian supply uncertainty

European natural gas and LNG players followed the latest increase in US LNG export capacity as Venture Global's Plaquemines LNG facility began exports, with the expiration of the Russia-Ukraine transit deal nearing and no clear agreement in sight.

Plaquemines LNG terminal exported its first LNG cargo on Dec. 26. The ship is headed to Brunsbuttel in Northern Germany, where it is expected to deliver the superchilled commodity to EnBW, a German utility, around Jan. 8.

The start of exports from Venture Global's terminal came as European gas players closely watched the fate of the Russia-Ukraine gas transit agreement, set to expire by year-end.

No deal in place would entail the loss of approximately 15 Bcm of annual supply, increasing Europe's reliance on LNG imports. Germany is expected to play a key role in delivering the regasified LNG volumes to landlocked nations in Central and Eastern Europe, most reliant on Russian gas supplies.

Some market participants in CEE believed that limited volumes of Russian gas might still flow through Ukraine, in part due to the push by several utilities and politicians in the region.

An LNG trader said that the US exporter would be monitoring the impact of the Russia-Ukraine transit. The trader added that the impact would be severe on Central Eastern European countries and that Europe is in a bad position due to its reliance on either Russian gas or US LNG.

"The US is trying to protect its position as the world's largest LNG exporter and would want exports to land in Europe, should the pipeline expiry," the trader said. "If the pipeline expires, Europe loses its leverage with the US and Trump will get exactly what he wants."

A second trader said that these new volumes could find a home in Asia, but given the bearish outlook for Asia for the rest of this winter, most volumes would find a home in Europe, especially as Europe looks to LNG to replenish the lost gas volumes from the likely expiry of the Russia-Ukraine transit.

The potential loss of Russian pipeline volumes via Ukraine also comes amid lower gas stocks across the EU, with the block's gas storage fill level at 74.74% on Dec. 25, down from 86.9% on Dec. 25, 2023, latest Gas Infrastructure Europe data showed.

German LNG imports already strengthened month over month over Dec. 1-25, reaching 508 million cu m, up by 154 million cu m over the same period in November, latest S&P Global Commodity Insights data showed.

Market players in Central and Eastern Europe believed that the demand for German LNG infrastructure capacity would increase further after the year-end, particularly to balance the Czech Republic.

A European gas broker believed that Russian President Vladimir Putin's Dec. 26 statement on the impossibility of agreeing to a new gas deal with Ukraine had mitigated the immediate bearish impact of Plaquemines beginning its exports during the Dec. 27 trading session.

"...Two forces [are] against each other here," the broker said, adding that the price action probably showed that "Putin's words carry more weight than this LNG news."

Dutch TTF January contract traded at Eur47.54/MWh at 1330 GMT Dec. 27, the latest Intercontinental Exchange data showed, up from Eur45.40/MWh, assessed by Platts on Dec. 24.

US feedgas demand

A third source said traders expect that the incremental increases in US supply from these new projects will help to continue satiating European demand, with these US players looking to "enjoy the benefits of European prices. "

Several sources added for these new Plaquemines volumes, there are additional clauses in the contracts for long-term buyers to mitigate any of the same risks that off-takers experienced with the Calcasieu Pass volumes.

The growing number of liquefaction projects will also boost demand for feedgas, which should support domestic US gas prices. Traders expect that in 2026, when more liquefaction projects come online, US contract prices could spike as a sudden rise in feedgas demand supports sentiment. This may lead to stronger spot prices over the year. For now, US feedgas continues to receive support from the arrival of Plaquemines.

This also comes at a time when LNG spot prices have remained relatively elevated, with Platts assessing the FOB US Gulf Coast Marker at $13.29/MMBtu on Dec. 24 and the Platts DES Northwest Europe Marker for February at $13.76/MMBtu.

The USGC-NWE LNG spread of 47 cents/MMBtu compares to the $1.734/MMBtu spread seen this time in 2023, with traders expecting US FOB prices to remain relatively steep compared to European gas and LNG amid a depressed global shipping market.