Asian buyers outbid Europe for spot supplies of US natural gas

Natural gas updates

Asian buyers are winning a bidding war for American natural gas, undercutting hopes in Europe that US exports will be a quick fix for the continent’s fuel supply crisis — but bringing a windfall for traders able to capitalise on the price spike.

Natural gas settled at a record high of 189.65 pence a therm in the UK on Monday, adding to fears that fuel price inflation could derail Europe’s economic recovery. Equal to about $26 per million British thermal units, it is five times the US natural gas price.

The price disparity has not been wide enough to lure more spot supplies from the US’s expanding liquefied natural gas export industry, which condenses the fuel for shipment on ocean tankers. These exports are sailing to deeper-pocketed buyers in Asia and sometimes South America instead.

“They have more purchasing power now,” said one LNG broker, referring to Asian buyers. “Europe has pipeline supplies and China and Japan don’t have alternatives.”

The advent of exported US shale gas in the past five years has raised hopes that LNG would ease allies’ anxieties over energy supply.

US leaders since Barack Obama have talked up the strategic significance of American energy. Officials in Donald Trump’s administration hailed “freedom gas” that would be shipped across the Atlantic to lessen Europe’s dependence on Russia’s gas.

When the UK energy company Centrica signed a supply agreement in 2013 with Cheniere Energy, a pioneer in US liquefied gas exports, then-prime minister David Cameron said the deal would provide “British consumers with a new long-term, secure and affordable source of fuel”.

Most LNG is delivered under long-term contracts, but spot trades in which cargoes are freely bought and sold account for 10-20 per cent of America’s 10bn cubic feet a day of LNG shipments, according to Amber McCullagh, a director at the consultancy Enverus.

Spot cargoes are critical to meeting demand when local supplies are depleted. Asia and South America both overtook Europe earlier this year as the biggest destination for cargoes of US LNG sold in the spot market, according to data from Kpler, a commodities data and analysis group.

Some long-term offtake contracts lack destination clauses, meaning that the gas can sometimes be sold to higher bidders.

Line chart of million tonnes  showing Asia and the Americas have increased imports of US spot LNG

Traders are pouncing, taking advantage of differences between American gas that can be bought, liquefied and shipped to Tokyo Bay for $10 a million BTU and sold at values that have consistently edged above European prices.

“Every time TTF goes up, JKM goes up,” the broker said, referring to the European and Asian natural gas price benchmarks. “It’s a race to secure the supplies.”

Commodity traders such as Trafigura, as well as oil supermajors including Shell, BP and TotalEnergies, are among companies with offtake agreements and adjustable portfolios of supply that could allow them to benefit from global price discrepancies, market sources said. The companies did not comment.

Some export terminal operators including Cheniere, the US’s largest LNG company, also reserve some capacity to sell in the spot market. Cheniere declined to comment.

“You don’t have to sell that many cargos for $20 a million BTU to see the impact on your bottom line, that’s for sure,” McCullagh said.

Additional reporting by Tom Wilson in London

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