U.S. LNG supply swings from Asia to Europe
U.S. LNG flows in 2023 reflect the recent seismic shift in the global gas market. So far this year, 67% of U.S. LNG exports arrived at European terminals, while 30% went to Asian destinations. This represents a reversal in U.S. LNG export flows compared to 2021 (pre-Russia/Ukraine war), when Europe had a 30% share, dwarfed by Asia at 53%.
The rerouting of the swing supply of U.S. LNG has been caused by the pivot in the European gas balance away from a baseload of Russian piped imports towards a reliance on imported LNG cargoes. Asia, as a result, needed to balance against lower LNG supply, pushing JKM prices higher to reduce demand in the region. Incentivised by more attractive European netbacks and lower Asian demand, traders and some utilities have been rerouting contracted US cargos from Asia into Europe.
However, recent signs show U.S. cargos starting to shift back towards Asia as JKM prices return to a healthy premium of 1.9 $/mmbtu over the LNG NW Europe Marker across summer 2023.
The relationship between U.S. cargo flows and JKM/NW Europe Marker pricing dynamics reflects the importance of the U.S. as a key marginal gas supplier. Flexible Henry Hub indexed supply has been critical to the balancing of the global markets, given the value of diversion and cancellation flexibility. This flexibility is increasing as export capacity has grown to ~90 mtpa as of last year, becoming the world’s largest LNG exporter. With the nation’s export capacity forecast to nearly double by the end of the decade, the importance of this U.S. swing role is set to increase further in the future.
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