European Gas Drops 18% As US Sends LNG Flotilla

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by Tyler Durden
Thursday, Dec 23, 2021 - 02:18 PM

Update (0918ET): European natural gas prices plunged Thursday after news that a liquefied natural gas (LNG) flotilla from the U.S. was headed to Europe. 

Data compiled by Bloomberg shows that ten vessels are headed to the fuel-starved continent while another 20 ships are crossing the Atlantic but have not determined their final destination. 

The news of the flotilla sent the benchmark Dutch front-month gas spiraling down 18% to 141 euros in Amsterdam, wiping out this week's gains. 

Plunging gas prices were a relief for European power customers. French power contracts tumbled 24% to 775 euros per megawatt-hour and German electricity fell 15% to 277 euros per megawatt-hour. 

The reason for the flotilla is that the European and U.S. natgas spread is the widest ever and well over a 15-year range. The hefty premium has made it worthwhile for commodity traders to take advantage of massive arbitrage opportunities. 

While the spread has plunged from the highest extreme ever, for context, European gas is equivalent to a $273 price for a barrel of crude oil... strongly suggesting that demand for U.S. oil products is building. 

New weather models forecast milder temperatures for Northwest Europe also pressured gas prices. 

However, the opposite is happening in the U.S., where temps are expected to decline in January. 

For now, the market expects the flotilla of U.S. LNG cargo to offset lower gas flows from Russia. 

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Europe's consumption of liquefied natural gas (LNG) from the U.S. is about to significantly increase as a fleet of LNG carriers are en route to the fuel-starved continent.  

A record rally in European natural gas has put a hefty premium at the benchmark Dutch Title Transfer Facility (TTF) hub over the Japan-Korea- Marker (JKM). We noted earlier that commodity traders with uncommitted LNG cargo from the US Atlantic basin headed to Asia via LNG carriers are changing routes to supply Europe to take advantage of massive arbitrage opportunities. Below is the spread between European and U.S. natgas prices, well above its 15-year range. 

New shipping data shows what Bloomberg calls a "flotilla of U.S. LNG cargos" headed to Europe. 

Out of 76 U.S. LNG cargoes in transit, 10 tankers carrying a combined 1.6 million cubic meters of the heating and power plant fuel have declared destinations in Europe, shipping data compiled by Bloomberg shows. 

Another 20 tankers carrying an estimated 3.3 million cubic meters appear to be crossing the Atlantic Ocean and are on a path to the continent. Nearly one- third of the cargoes come from Cheniere Energy Inc.'s Sabine Pass LNG export terminal in Louisiana, the shipping data shows.

U.S. LNG export terminals are operating at or above capacity after reaching record flows on Sunday. Asia is typically the top destination for U.S. LNG cargoes, but that has changed this winter with the significant premium for gas in Europe. -Bloomberg

There's been a sizeable shift in U.S. LNG headed to Europe versus elsewhere in the world. Goldman Sachs commodity analyst Samantha Dart also confirmed in a note to clients that U.S. LNG shipments to Europe have accelerated versus Asia. 

... and now we have a visual of U.S. LNG headed to Europe to collect a massive payday as energy crisis-stricken Europe may no longer have to be at the mercy of Russia or Mother Nature.