European mainland gas prices have fallen now to about $5/MMbtu, a 50% decline from late September peaks. The loss in supply-demand is due to warmer weather, large LNG imports, and more active renewables.
Morgan Stanley argues that poor pricing conditions are likely to prompt US LNG utilization rate cuts.
According to Morgan Stanley, current European gas prices are more than $2/MMbtu below long-run marginal cost of US LNG and just shy of US LNG short-run marginal costs. The Asian market is sending similar signals.
“We noticed that in 2016, when global gas prices were also low, LNG output declined both locally in the US as well as globally. We noted that there seems to be no decline in LNG exports from Sabine Pass in the US. But we also noticed that storages at Sabine Pass are now full (according to Platts) including capacity offered by berthed vessels.”
As a share of LNG imports into Europe, US supplies increased 10 times year-over-year in January-February. In the global text, US LNG is rapidly expanding from 0% in 2015 to 11% in 2019. Also, of all the new LNG plants expected in 2019, about 45% are in the US, according to data from Wood Mackenzie.
Meantime, in January-February, LNG imports from Russia (Yamal LNG) rose even quicker year-over-year than US LNG. Competitive European prices (vs. Asia) and an early project completion leading to a large share of spot sales explain this.
