Save for later Print Download Share LinkedIn Twitter Depleted gas inventories in Europe could prove a boon for US LNG exporters poised to bring in the additional cargoes Europe will need to bring storage to acceptable levels by winter. The US is better positioned to fill this need than other major players, including Qatar, Russia and Australia, due to the flexibility of supply built into its unique tolling model in which customers are obligated to pay set fees for capacity, but can choose not to offtake LNG. This heightened demand is also being turbocharged by strong netbacks from the US to European terminals, reflecting US gas prices closer to $3 per million Btu and benchmarks across the Atlantic that are 44%-63% higher. This combination of factors could ensure US LNG feedstock needs will remain at record levels nearing 12 billion cubic feet per day, absorbing roughly 13% of US dry gas production. The situation puts the US in a far better position than this time last year when a late June slump in both the Dutch Title Transfer Facility (TTF) price and demand during pandemic lockdowns put US LNG trade with Europe underwater. US price differentials to Europe were so narrow by late June that the Henry Hub would have needed to plunge to $1.25/MMBtu to break even at TTF pricing, the principal European benchmark. Today, Henry Hub gas close to $3/MMBtu could land in Northern Europe at a substantial profit as reflected in the $7.59 netback to the US Gulf Coast last week, while this time last year shipping gas to Belgium was a losing proposition. This favorable arbitrage looks to continue as forward pricing in the US does not indicate undue concern over the summer refill storage his summer, while tighter supply and low storage across the Atlantic is likely to bolster summer gas prices there. European gas inventories have sunk dramatically since the start of the year as more LNG was sent to Asia to capitalize on sky-high prices there, while a regional cold snap meant gas was withdrawn from storage faster than normal (PIW Jan.22'21). UK stocks were just over 24% full in late March, down from 32% in late February. After starting 2021 around 74% full, European storage had dwindled to less than 30% full by late March or roughly 1.7 trillion cubic feet, according to Gas Infrastructure Europe. European Inventories were almost 55% full that time last year. Unlike last year, when the continent entered April with ample supplies -- and subsequently entered winter with storage at five-year highs -- this year could unfold quite differently. While inventories will have to see a significant refill to ensure enough gas for the upcoming winter, pipeline supply could run light. Germany’s inventory free fall illustrates the point. Gas stocks in Europe's biggest gas market were over 72% full at the start of 2021 but shrank to 25% full as Russia's Gazprom removed gas from storage booked in Germany rather than sending more gas to Europe via Ukraine. Without a greater uptick in Russian gas flows to Europe, and with Algerian piped gas imports potentially out of the money in the third quarter, the European stockbuild will rely heavily on LNG, consultancy Energy Aspects suggests. It forecasts that European LNG imports, excluding Turkey, will rise about 0.5 Tcf year on year this summer to just under 2.3 Tcf, a new record. However, going forward, the carbon content of US cargoes is expected to loom large. European buyers have already begun paying less attention to seasonality and Covid-19 and more to the greenhouse gas emissions created in producing LNG cargoes (PIW Apr.9'21). French Engie’s rejection of a possible deal with NextDecade’s Rio Grande LNG in South Texas likely began this carbon struggle. At the same time the US LNG sector is competing not only with aggressive expansions of capacity in both Russia and Qatar but the latter is planning a carbon capture and storage (CCS) project and has sold carbon-neutral cargoes (PIW Apr.23'21). The US is countering the Qatari move by adding CCS to at least one terminal project while existing operators are mulling carbon emissions tags for all cargoes starting next year. Cheniere has already committed to tagged cargoes.