Europe is awash in natural gas. As a major destination of U.S. LNG exports, its problems are the U.S. LNG exporters’ problems.
Global gas demand loss, brought on by the coronavirus, has amplified the record amount of gas in European storage. U.S. LNG exports will likely stay depressed throughout the summer as the combination of lower demand and high storage keep European benchmark LNG prices close to or below Henry Hub.
The chart above shows natural gas in storage for Europe compared to last year and previous years’ averages. The rise in global LNG supply nearly caused gas storage in Europe to reach its implied storage capacity last winter. It’s on pace this year to surpass that level. If we take 2019 gas injections from June to November 1 and apply the same rate to 2020, storage would eclipse capacity by nearly 500 Bcf.
Storage can’t exceed what is physically available, therefore, European imports must be less than 2019’s rates. As a result. U.S. exporters have fewer options. A diminished market could force many remaining cargoes into other continents.
This past winter, Europe accounted for one-third to one-half of U.S. LNG exports, according to the EIA. Exports to Europe (dark-blue bars) are represented in the chart above. Exports to Europe increased in 2019 due to unfavorable arbitrage for U.S. LNG exports to Asia. Unfortunately, Europe will be unlikely to absorb the same amount of U.S. LNG cargoes this summer and coming winter as it did last year.
Already, U.S. exporters are feeling the pain. At the peak in mid-March, LNG flows from U.S. terminals nearly touched 10 Bcf/d. Now, they are holding steady at just under 3.7 Bcf/d. LNG exports are likely to stay subdued until winter demand picks up in the northern hemisphere. This is also when both European and Asian LNG prices rise compared to Henry Hub, opening up the export arbitrage – (U.S. LNG Cancellations Mount, Keep Pressure on Summer Gas Prices) for more about LNG arbs.