LNG imports to Europe again near highs, but coming months expected to be different

Imports of liquefied natural gas (LNG) to Europe remained steady at more than 100 TWh in the first five months of this year. Imports in May were even the second-highest since at least 2012. During June and July, however, LNG imports should decline, as a number of orders, particularly from the US, have been cancelled, according to Reuters and S&P Global data. 

Falling natural gas prices in Europe and lower gas consumption have so far had no impact on liquefied natural gas supplies into European transmission systems. Deliveries remained exceptionally strong in May, exceeding 107 TWh of natural gas.

The high volumes of natural gas flowing into the system from import terminals are, however, apparently the result of a certain inertia due to deliveries already contracted. The current situation is that gas prices on European exchanges are at record lows and space in gas storage facilities is rapidly dwindling (storage facilities are currently around 73% full; see the following chart).

The economic rationale for further imports, which must account not only for extraction costs but above all for the costs of liquefaction, transporting the liquefied gas and subsequent regasification, is therefore fading in the context of low wholesale prices.

LNG imports to Europe should nevertheless gradually weaken in the coming months. According to Reuters and S&P Global, traders have already cancelled more than 20 deliveries from US export terminals for June and a further 40-50 for July.

Some of these were apparently also intended for Europe, making it likely that imports will fall below 100 TWh next month after an extended period. This is also indicated by current data compiled by S&P Global, according to which LNG imports from the US in May fell from their previous 33% share to around 16% (there were 14 deliveries to Europe in total, corresponding to 2018 levels).

A significant decline in LNG exports from the US is also indicated by the volume of gas being transported to US export terminals. At the beginning of June, this fell to a 13-month low, mainly due to cancelled deliveries destined for Asia and Europe.

According to some analysts, up to 125 deliveries from the US could be cancelled during the summer. The clear consequence will be low utilisation of export terminals and pressure on their operators' margins. Following the significant impact of the COVID-19 crisis on extraction companies, the United States now has another energy sector significantly affected by the crisis.