European liquefied natural gas (LNG) imports are on track to beat last year’s levels, driven in part by strong deliveries from the United States earlier in 2020, according to data intelligence firm Kpler.
The firm said this week domestic gas exports to Europe have nearly doubled this year, thanks in large part to a particularly strong first quarter. U.S. deliveries to the continent are expected to return to pre-coronavirus levels of 2 million tons (Mt) this month, according to Kpler.
Compared with the same time last year, European LNG imports were up by 5.6 Mt to 75.8 Mt through October, Kpler said in a research note this week. The firm said the gains have come despite a 10% decline in European intake during the third quarter when prices and demand were low.
NGI data also showed that U.S. deliveries to the continent are on track to beat last year’s levels. Through September, 200 of the 461 LNG cargoes that have left the United States arrived in Europe, accounting for 43.4% of the Lower 48 exports this year. That compares to the 215 U.S. cargoes that Europe imported during all of 2019, according to the data.
Kpler said power demand across Europe has slowly recovered since June as Covid-19 lockdowns have eased and businesses and schools have reopened. Some restrictions have been imposed again, but it said additional measures could support gas demand as many people are working from home at the same time as some offices remain open, which could boost overall heating demand. In November, Kpler said LNG imports were up 5.1 Mt from year-ago levels, driven by France and the UK.
U.S. exporters are playing a key role in the rebound. While global LNG departures have increased by only 1.6% in 2020, domestic exports have jumped by 26.5% year/year, Kpler said. That compares to other major suppliers such as Qatar and Russia, which have increased exports by 4% and 1.1%, respectively.
Europe’s LNG imports have been steadily increasing since late 2018. The continent is a top destination for U.S. exports because its location is closer to the United States, and it has robust gas infrastructure and liquid trading markets. Strong power generation demand, declining gas production from the UK and the Netherlands, along with lower demand from Asia, are also behind the growth.
Kpler said the spike in European imports this year has been driven by countries in the northern part of the continent, including Belgium, the UK and the Netherlands. Imports to destinations in the south, such as Italy, Portugal and Spain, have declined. As prices have rebounded, the firm said the continent is also burning more coal for power heading into the winter as gas is less competitive with carbon-adjusted coal prices.
Over the summer, European gas prices traded below Henry Hub, sending a signal that the market was oversupplied, locking out U.S. imports. Price spreads have improved dramatically since then, making it more profitable to move the super-chilled fuel overseas. The Dutch Title Transfer Facility and the UK’s National Balancing Point are trading around $5.00/MMBtu for the balance of winter while Henry Hub is trading around $3.00 over the same time.
Warmer winter weather last year left European storage inventories high at the start of injection season. Natural gas in underground storage on the continent stood at 88.5% on Tuesday, while storage at regasification terminals was at 52.4% of capacity. There are concerns that if inventories exit the season high again this year, a similar situation could play out next summer for U.S. cargo cancellations.
For now, the market is on stronger footing, with demand returning in Asia and colder weather across the Northern Hemisphere pushing global gas benchmarks — including those in Europe — higher this week. Feed gas deliveries to U.S. export terminals hit a record on Tuesday of 11.39 Bcf, according to NGI’s U.S. LNG Export Tracker.
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