LNG heads to US instead of Europe, which may no longer need to serve as a balancing market

Supplies of liquefied natural gas to Europe fell by almost a quarter in June amid low prices and consumption. One reason is that natural gas prices are now more favourable in the US, meaning that some shipments may be redirected there. A number of deliveries to Europe scheduled for June and July were also cancelled. 

The liquefied natural gas market is changing substantially due to low gas consumption in the EU. While Europe was considered a balancing market for LNG before the outbreak of the pandemic, receiving shipments with no more lucrative outlet, the situation may now change due to more favourable prices in the US.

This change is currently being driven primarily by natural gas prices on the US and European markets, with contracts on US exchanges having been priced higher than European ones since the end of April. This is already being reflected in LNG deliveries to the EU, which have been 25% lower on average since the beginning of June than in the previous month.

Current gas prices play a role in decisions on where an LNG supplier will sell a specific cargo, while a change of destination may occur even after a shipment is already under way. Reuters previously reported that, due to full storage facilities in Europe, the tanker Madrid Spirit apparently decided to change its destination and headed to the US instead of Europe.

Such a situation is relatively unusual. Europe has recently served as a balancing market, receiving a number of LNG shipments when they could not be placed in another market for regulatory or economic reasons. Europe became a balancing market in part because European import terminals are the only ones required to provide third-party access to their facilities. Combined with the fact that European terminals are not fully utilised, this made Europe an ideal market for placing shipments with no other more suitable outlet.

For comparison, a total of 21 LNG tankers were delivered to the United States throughout last year, while more than 500 tankers were dispatched from the US.