Coronavirus: LNG buyers cancel cargoes as US natgas becomes most expensive in world

U.S. natural gas prices topped benchmarks in both Europe and Asia for the first time ever this week, giving buyers of U.S. liquefied natural gas (LNG) another reason to cancel cargoes.

Front-month gas futures for June delivery at the Henry Hub benchmark in Louisiana settled over both the Japan/Korea Marker (JKM) and the Title Transfer Facility (TTF) in the Netherlands for the first time on May 5, according to the most recent pricing data available for all three contracts on the Refinitiv Eikon.

Henry Hub futures for June settled about 11 cents per million British thermal units (mmBtu) over JKM on May 5, the first time the U.S. contract ever topped the Asian benchmark.

U.S. futures also closed about 32 cents per mmBtu over the June TTF contract on May 5. Henry Hub has settled above the European benchmark every day since April 30, which was the first time it closed over TTF in 10 years.

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LNG buyers in Asia and Europe have already canceled the loading of around 20 cargoes from the United States in June as government lockdowns to stop the spread of coronavirus have cut gas demand around the world.

Those buyers canceled U.S. cargoes when forward prices made it more expensive to buy gas in the United States than it could be sold for in parts of Europe and Asia.

Energy traders said the latest front-month price moves for the June front-month contracts marked the point at which the spot market finally caught up to trading in forward markets.

U.S. gas for the summer has been trading over some European and Asian hubs for weeks.

Most U.S. LNG, however, has already been sold forward years in advance to utilities consuming the fuel, so some U.S. cargoes will continue to go to Europe and Asia.

"The forward curve in the European market still shows an uptick in the winter. So, if you have storage, you can bring the gas to Europe, store it until the winter and make money," said Nikos Tsafos, senior fellow at the Center for Strategic and International Studies (CSIS).

Refinitiv said U.S. LNG exports averaged 7.0 billion cubic feet per day (bcfd) so far in May, down from a four-month low of 8.1 bcfd in April and an all-time high of 8.7 bcfd in February.

One billion cubic feet of gas is enough to supply about 5 million U.S. homes for a day.