May European LNG imports dip as capacity limits sink prices

Following a record month for physical LNG imports in April due to historic price spikes, monthly European receipts decreased in May as limitations in downstream transport pressured local hub prices, an analysis of S&P Global Commodity Insights data showed.

As Europe grapples with the problem of replacing lost pipeline supply from Russia, limited inland transportation infrastructure had a part to play in the global dynamic during the month, with some participants deterred from targeting discounted markets as a result.

Across S&P Global's assessed hubs -- France, Spain, Italy, Belgium, the UK and the Netherlands -- a total 8.45 million mt of LNG, or 11.661 billion cu m of natural gas equivalent, was imported in May. This represented a 17.9% drop month on month, but also rose a third on the year, and the eighth consecutive year-on-year increase.

Pan-European imports -- including Turkey and minor trading hubs -- amounted to 10.764 million mt during the month, equating to 14.854 Bcm of natural gas. This measure was down just 7.1% on the month, demonstrating a robust import from smaller hubs as the continent rushed to replace missing pipeline imports.

With Russian exports via the Yamal pipeline through Poland now effectively banned, significantly lower transit through Ukraine compared to previous years, and more recently direct supply curtailments as a result of contractual disputes over payment in rubles, Europe has turned to the global LNG market to offset the missing supply.

However, much of Europe's LNG regasification is isolated from neighboring markets, meaning that additional supplies cannot always get to premium markets.

There is no physical reverse capacity between France and Germany, just a 20 million cu m/d interconnector linking Spain with France, while nameplate capacity of pipelines from the UK to the mainland is half that of its regasification capacity. UK pipeline export to the European mainland was near maximum for the duration of May.

This has caused a major disintegration of the previously integrated European market for gas, with some hubs now at major discounts to the Dutch TTF benchmark, specifically where LNG arrives in abundance, but has little capacity to transport these volumes onward.

Consequently, the UK posted the sharpest monthly decline in imports, falling 37.9% on the month to 1.995 Bcm, while the rest of Europe's liquid trading hubs posted a lesser decrease.

Prior to May delivery, the average British NBP month-ahead contract was valued at $24.76/MMBtu, according to the Platts Market on Close assessment process by S&P Global. This was several dollars below the TTF (31.926/MMBtu) and the Asian spot LNG prices, according to the Platts JKM benchmark ($32.956/MMBtu).

The UK limited its sourcing to shipments from Peru, Nigeria and Qatar, while also effectively reducing its receipt from the US by half. France and Belgium also saw their import from the US drop sharply, with their respective virtual trading hubs remaining at a meaningful discount to TTF, although Spain did record an increase in receipt from the US on the month.

Global picture

While receding from a position of global export leadership, the US remained the dominant entity in the European market for exporters in May by some distance.

In exporting 8.861 Bcm of gas equivalent during May, down 1.8% on the month, the US shipped 48.2% of this volume to Europe's liquid trading hubs, with this proportion down from 67.1% a month prior. The country shipped 5.765 Bcm of gas equivalent to pan-European markets, including Turkey.

The Freeport LNG liquefaction facility -- currently shut for at least three weeks following a fire June 8 -- delivered 1.002 Bcm to Europe during May of the 1.284 Bcm it exported globally, with this data giving some indication of what the outage's impact may be in June.

Henry Hub futures surged following European price spikes in September, December and March, and averaged $6.705/MMBtu for May delivery. For June, the front month averaged $8.163/MMBtu, while trade for July saw prices peak at $9.293/MMBtu on June 7, before dropping sharply to $8.699/MMBtu immediately after the Freeport fire.

Qatar exported more LNG globally than the US in May, shipping 9.658 Bcm around the world, up 5.7% on the month. It only delivered 26.6% of this volume to Europe's liquid hubs, however, and remained the second largest exporter to the region despite resuming its traditional summer delivery.

Russian exports from the Yamal LNG facility edged 5.3% higher to 2.519 Bcm, with 92% of this reaching Europe's liquid trading hubs. Notwithstanding Asia's slender premium to Europe, the Arctic Sea route was barely used despite melting ice, with two shipments delivered to Indonesia and Portugal making up the rest of the total.

Amid growing political tension between Moscow and Brussels, and since Russian ships have been barred from docking in UK ports, export patterns from Yamal were particularly interesting.

Shipping originating from Yamal resumed a former strategy of reloads from Belgium's Zeebrugge terminal. Rather than delivering into the European market, a total 679 million cu m of gas was reloaded and delivered to China, India, South Korea, Taiwan, Indonesia and Sweden.

Yamal shipments also targeted France more extensively amid missing US LNG deliveries to France and Belgium, with a 102 million cu m reload to Kuwait also performed.

Internally, 209 million cu m was shipped from France, and 157 million cu m from Spain to other liquid trading hubs, with Italy the main beneficiary. These shipments were not included in the overall import total.

Looking forward, Europe's hub dislocation has now become a microcosm for the global LNG market. The NBP and JKM have diverged from TTF for June delivery, averaging $19.037/MMBtu, $23.433/MMBtu and $28.842/MMBtu, respectively, with the latter's premium reflective of a pressing need to sustain imports in the current environment.