America loads Europe with gas

European LNG prices fell to an 18-month low amid news of the return to the market of the largest US liquefaction plant Freeport LNG. The company plans to fully restore supplies in the first quarter. There will be little new supply from LNG in the market in 2023, so fuel prices going forward will depend on rising demand in Asia.

LNG prices in Europe reached an 18-month low after the announced return to the market of the volumes of the American Freeport LNG plant, whose capacity was idle for half a year due to a fire. Platts estimates that on February 13, the cost of LNG cargoes for delivery to Northwest Europe was $14.82 per MMBtu ($530 per 1,000 cubic meters), the lowest since August 23, 2021, when the price was $14.7 per MMBtu.

Freeport LNG shipped its first shipment of LNG to buyers aboard BP’s Kmalin Diamond vessel on Feb. 12 following a break caused by a plant fire in June 2022. While the plant’s production capacity is shut down, fuel is taken from storage tanks. The plant is expected to reach full capacity in the first quarter. The gradual return of the plant’s volumes to the European market, which is steadily supplied with LNG, may put some pressure on prices.

Freeport LNG can export 16–19 LNG cargoes per month, before the explosion, the plant accounted for about 20% of US exports. The shutdown of the plant in the summer of 2022 exacerbated the panic among European buyers who sought to replace Russian gas after the outbreak of hostilities in Ukraine with alternative supplies.

Now the prices for LNG for delivery to Europe have come close to spot prices at European hubs, although back in December 2022 they were almost 30% lower due to the fact that the receiving infrastructure did not allow handling all cargo and supplying regasified gas deep into the mainland. Currently, the loading of LNG receiving terminals in Europe remains at a high level. Spot gas prices continued to fall amid warmer-than-usual weather and reduced consumption by energy-intensive enterprises, hovering just below $600 per 1,000 cubic meters. The level of storage of stocks in European UGS facilities remains high – 66.13% against 32.7% a year earlier, according to AGSI.

A further significant drop in prices with the current volume of Russian gas exports to the EU looks unlikely, independent analyst Alexander Sobko believes. “And because already near the current quotations there is support for prices in electricity generation (switching from coal to gas), and because the price of $15 per MMBtu ($530 per 1,000 cubic meters) is already quite comfortable for demand growth from the Asia-Pacific countries. This quote corresponds to the price of LNG under a classic oil-pegged contract in Asia with an oil price of $90 per barrel,” he explains.

There will not be much new supply in the LNG market in 2023: apart from the volumes that will gradually enter the market completely after launches in 2022 – the sixth line of Sabine Pass, Calcasieu Pass, Coral FLNG (Mozambique) and Port LNG – to completely new capacities include the launch of a floating plant on the border of Mauritania and Senegal (Tortue, 2.5 million tons per year), the third Tangguh LNG line in Indonesia (3.8 million tons), as well as a small floating LNG plant on the shelf of the Republic of the Congo (600 thousand tons).

Tatyana Dyatel