Historic price spikes lead to record LNG imports into Europe

Record-breaking price spikes in Europe's wholesale natural gas market in March prompted a response from global LNG supply sources that the region has never seen before, an analysis of data from S&P Global Commodity Insights showed.

Exacerbated by military conflict between Russia and Ukraine, the historic March price spike was also a product of intensified efforts to restock with inventory mandates looming, alongside a pressing need to quickly source alternatives without Russian-baseload supply through Yamal, the canceled Nord Stream 2 system, and for buyers who have rejected the new payment system for contractual supplies.

The monthly import profile for April, which following European wholesale front-month trade in March, saw sourcing from all parts of the world intensify, with Europe comfortably receiving its highest-ever volume for a single month. This was, however, paid for at a high price.

Aggregated physical imports of LNG into Europe and Turkey came to 11.591 million mt during April, equating to 15.995 billion cu m of natural gas. Across market hubs assessed by S&P Global, the total was 10.296 million mt of LNG, or 14.209 Bcm of natural gas equivalent.

The latter figure was the seventh consecutive year-on-year increase in monthly imports, with April receipts 47.7% higher on the year, and also representing a 19.9% increase month on month.

Building upon a recent surge in US LNG exports to the region, seasonal Qatari supply also returned to the region's key trading hubs, while sourcing from the rest of the world outside the top five exporters to Europe was at its highest since December 2019, recorded at 2.067 Bcm of gas equivalent.

The US shipped 9.022 Bcm globally in April, a decrease overall amid price-induced demand destruction in Asia, but ultimately registering the highest proportion it has ever delivered to Europe at 78.3%, with 67.1% of the overall total going to S&P Global assessed hubs. Regasification terminals outside of S&P Global Market assessment include Poland, Turkey, Portugal, Lithuania, Croatia and Greece.

Qatari shipments aggregated to 9.132 Bcm, with 28% of this finding its way to Europe, and 25% to S&P Global assessed hubs, with contractual supply to Poland making up the difference between the two.

Global price environment

Now generally recognized as global in nature, regional gas prices surged to record highs in March ahead of April delivery, while even Henry Hub futures are now trading at pre-shale, multi-year high levels for the balance of summer.

Europe was a clear destination of choice for marginal cargoes, with both the British NBP and Dutch TTF holding a premium in excess of $4/MMBtu to Asian spot LNG prices, with respectively month-ahead averages of $40.568/MMBtu and $41.644/MWh.

At their peak in early March, these hubs recorded Platts Market on Close assessments of $65.845/MMBtu and $67.925/MMBtu, respectively, while the Platts JKM benchmark for Asian spot LNG from S&P Global peaked at $84.762/MMBtu.

There is a growing consensus among analysts that a price above $38/MMBtu for Asian delivery becomes intolerable for some spot purchasers. The drop in US exports globally in April, and the small proportion of this that made it to Asia, seem to bear this out.

With the subsequent response from global LNG exporters to meet European demand, some of the heat has been taken out of the market, with average month-ahead prices for May seeing JKM reclaim its more traditional premium to Europe at $32.956/MMBtu.

The TTF month-ahead average for May was not far behind at $31.926/MMBtu, according to the MOC process, while the NBP sank considerably to $24.76/MMBtu as high LNG deliveries were unable to fully reach Continental markets due to onward transportation bottlenecking.

Therefore, Continental wholesale markets remain competitive with Asia, while the UK has seen a marked drop in LNG regasification since the start of May, despite holding significant regasification capacity.

Import dynamics

Such a strong premium for Continental Europe resulted in fresh, monthly-record imports for France (3.635 Bcm), Spain (3.127 Bcm) and the Netherlands (1.364 Bcm) during April. While UK deliveries were high, they fell short of all-time records at 3.21 Bcm.

However, French and Spanish hub prices have also fallen well behind the TTF due to insufficient onward transportation capability, respectively averaging $28.37/MMBtu and $27.849/MMBtu for May delivery. This steep discount could quickly reverse the current surplus.

"Regarding LNG flows, they seem quite sustained until early summer given the spread with JKM," said a French gas trader, warning that "they could drop quickly with the end of Chinese lockdowns and the hot season in Asia."

"They are critical, especially if Russian flows keep decreasing," the trader added.

France received its highest number of US cargoes in April (21), although it only received two from the more recently commissioned Calcasieu and Elba Island liquefaction facilities.

Spain received reloads from as far away as South Korea, such was the strength of European sentiment. It also unusually welcomed a cargo from Cameroon, which is also thought to be supplying the Russia's European exclave Kaliningrad, and a reload from Greece.

Russian exports from the Yamal LNG facility to Europe totaled 2.216 Bcm in April. Such shipments are barred from docking the UK, and are increasingly targeting Belgium's Zeebrugge port, where the majority of Europe's 285 million cu m of global reloads were initiated.

With Poland receiving substitute LNG volumes as a direct replacement for Russian supply following a payment dispute, Bulgaria is also indirectly receiving support from the Greek Revithoussa terminal, which unusually welcomed two reloads from Turkey in April.

Poland even managed to reload a cargo to the Netherlands in April, although scope to do this in the future may now be limited without direct pipeline supply from Russia.