European Gas Plunges 20% as Rally Lures Flotilla of U.S. LNG

Dec 23, 2021

(Bloomberg)

European natural gas prices plunged more than 20% on Thursday as this year’s stellar rally attracted a flotilla of U.S. cargoes.At least 10 vessels are heading to Europe, according to ship-tracking data compiled by Bloomberg.Another 20 ships appear to be crossing the Atlantic, but are yet to declare their final destinations. U.S. cargoes of liquefied natural gas will help offset lower flows from Russia, Europe’s top supplier.

Gas prices in Europe have surged more than sixfold this year as Russia curbed supplies just as pandemic-hit economies reopened, boosting demand. Delayed maintenance work and power-plant outages also contributed to the rally. Prices in Europe are 13 times higher than in the U.S. and the market is also trading at a rare premium to Asia, making the continent a prime destination for LNG.

Prices also declined as weather forecasts for Northwest Europe turned milder, with temperatures expected to rise above seasonal norms next week.Benchmark Dutch front-month gas fell as much as 22% to 135.03 euros in Amsterdam, erasing this week’s gains. Lower gas prices also dragged down power, with German electricity for next year slumping 15% to 277 euros per megawatt-hour, the biggest decline since Oct. 7. The French contract for February dropped 24% to 775 euros per megawatt-hour, after hitting a record above 1,000 euros on Tuesday.

U.S. LNG export terminals are operating at or above capacity after reaching record flows on Sunday. That will help plug Europe’s gas shortage as Russia has already signaled it intends to keep supplies capped in January.

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In the short term, Russian gas flows sent through Ukraine dropped, while shipments into Germany via a key transit route remain halted for a third day. The Yamal-Europe pipeline is instead shipping fuel in the reverse direction, eastward from Germany to Poland, according to data from operator Gascade.

Russia’s supplies to Europe fell sharply this week as some buyers under long-term deals have already hit their contracted supply limits for the year, according to people with direct knowledge of the matter. Fuel shipments declined because European buyers cut requests, Russian President Vladimir Putin said Thursday.

More U.S. LNG will also help ease France’s power crunch, as countries will need to produce more electricity from gas, coal and even oil to cope with nuclear outages. At the start of January, about 30% of France’s nuclear reactor capacity will be offline.