LNG Recap – Henry Hub Leads Global Gas Benchmarks Higher

U.S. natural gas prices have surged this week, breaking out of a narrow trading range with the largest single-day increase in more than 18 months and pushing up other benchmarks across the world.

A day after Henry Hub jumped 30 cents to finish at $2.10, the September contract gained another 9.2 cents to finish at $2.19 on Tuesday, surging past the long-term high established earlier this year. Asian and European gas benchmarks moved higher as well, with front-month contracts in Europe reaching highs last seen in March.

“Henry Hub has been acting as a price floor on liquefied natural gas (LNG) markets, providing the marginal source of supply for Europe,” said Schneider Electric analyst Balint Balazs. “Higher U.S. prices ultimately lead to worse netbacks holding other variables constant, requiring European contracts to increase to a level that is sufficient to incentivize LNG cargo loadings.”

Signs that LNG exports might strengthen with fewer cargo cancellations expected this month and a stronger forward curve in Asian and European markets, along with warmer weather, weaker production and stronger industrial demand stateside have all helped U.S. gas prices this week.

The LNG market has been struggling to find balance for most of the year on a supply glut that’s been made worse by the Covid-19 pandemic. More than 100 U.S. LNG cargoes have been canceled or are expected to be canceled between June and August.

ClipperData said this week that global LNG exports fell to 28.7 million tons (Mt) last month, down from 31.7 Mt in July 2019. The decline was led by a reduction of loading from the United States and the Pacific region. Imports also fell across the world to 27.6 Mt, down from 30.8 Mt in July 2019, ClipperData said.

U.S. LNG exports were flat during the week ending July 29, when seven vessels departed with a combined carrying capacity of 25 Bcf, the same as the prior week. But U.S. feed gas demand bounced back last weekend, with a gain of 740 MMcf/d on Saturday, “marking a significant uptick in demand as a result of decreased cargo cancellations,” according to Genscape Inc. Feed gas has been at or above 4 Bcf/d since then, according to NGI’s U.S. LNG Export Tracker.

In other developments, Sempra Energy said Wednesday that full commercial operations at Cameron LNG are expected in the coming days after Train 3 was completed July 31. The third train boosts the facility’s output to 12 million metric tons per year (mmty). The first train entered commercial service last year.

Kinder Morgan Inc. last week also brought online its eighth liquefaction unit at the Elba Island LNG terminal in Georgia. It has since asked the Federal Energy Regulatory Commission for permission to place the ninth unit into service, leaving just one left before the facility is complete. The first export cargo left Elba last December, and the company has been bringing on its smaller, movable modular liquefaction units ever since.

In Australia, meanwhile, Chevron Corp. has indicated that a number of defects found in the heat exchangers on one of three trains at the Gorgon LNG facility could be from manufacturing issues. The company has already shut the train down to repair the problem, but could face more maintenance if the issues are detected on the other trains.