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Despite the recent plunge in the European benchmark gas prices to below the North Asian benchmark, Europe continues to attract most of the U.S. exports of LNG as demand in Asia is still weak.
Last week, around 68% of the LNG shipments out of the United States were headed to Europe, with just 27% going to Asia, Laura Page, senior analyst at data and analytics firm Kpler, told Bloomberg on Wednesday.
Europe’s benchmark gas prices at the Dutch Title Transfer Facility (TTF) have slumped in recent weeks, due to warmer-than-usual weather across most of the continent. The European price has now plunged below the equivalent in Asia, sparking concerns that with lower prices than in Asia, Europe will no longer be able to attract most of the flexible spot LNG supply.
The EU relies mostly on imported LNG to offset the loss of most of the Russian pipeline gas supply.
But mild weather and weak demand for natural gas in North Asia sent Asia’s spot LNG prices tumbling by 10.7% last week from the previous week. Interest in spot LNG cargoes is weak despite the drop in prices in recent weeks, analysts say. Inventories are at comfortable levels, while the mild start to the year in most of the northern hemisphere also helps to keep inventories higher than usual, dragging spot LNG prices down.
Demand could rise after China overcomes the current Covid wave and fully re-opens, but that’s probably weeks away, according to analysts.
Analysts warn that next winter 2023/2024 could be much worse for Europe if Asian—especially Chinese—demand rebounds and intensifies the competition between the European and Asian markets for drawing more LNG supply.
This winter, the risk of shortages has decreased compared to expectations before the heating season began.
“Europe currently holds a 358 TWh surplus of gas relative to this time last year, some +60 TWh more than what was withdrawn during the first three months of 2022,” Ole Hansen, Head of Commodity Strategy at Saxo Bank, said on Tuesday.
While not ruling out a worsening of the current situation, the German Federal Network Agency, Bundesnetzagentur, said on Tuesday, “A gas deficit situation this winter is becoming increasingly unlikely”.
