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LNG Exports And European Inventories: What Is Going On And What It Means For U.S. Natural Gas Prices

Jun. 02, 2020 9:55 AM ETCTRA, DGAZ, SWN, UGAZF, UNG, LNG30 Comments
Force Majeure profile picture
Force Majeure


  • LNG export demand peaked at 9.5 BCF/day in February 2020 but has since fallen by over 5 BCF/day.
  • While weak overseas pricing - in some cases, negative to Henry Hub - has contributed to the drop, record European inventories are and will be a major driver of soft US Summertime export demand.
  • Dwindling LNG exports have tightened the European supply/demand imbalance, but it isn't enough.
  • Even with the lost LNG export, the pieces are in place for a bull market in natural gas later this summer - but it will need help.
  • Cheniere Energy has done what it can to minimize exposure to the downturn in LNG demand, but a prolonged drought will still hurt its bottom line, and the company makes an attractive short above $45/share.

For beleaguered natural gas bulls, 2020 has brought one headwind after another. First, it was an unseasonably mild winter that flipped a long-standing storage deficit to a surplus and sent prices tumbling to 25-year lows. Then, it was COVID-19 which, after a brief period of optimism surrounding production declines, brought temperature-independent losses in industrial and commercial demand that exceeded the drop in supply. Over the past month, the bearish headlines have turned to focus on LNG exports.

LNG exports first became a new source of domestic natural gas demand during the first quarter of 2016 with the opening of Cheniere Energy's (LNG) Sabine Pass plant. Over the next 4 years, exports surged with demand topping out at 9.5 BCF/day in February 2020. Since then, however, gas demand has steadily declined, falling under 8 BCF/day in early April, under 7 BCF/day in early May, and under 6 BCF/day by the middle of last month, cutting the year-over-year gain to less than 1 BCF/day. Then, on June 1, demand tumbled to just 4.3 BCF/day, a new 2020 low and down 1.4 BCF/day from 2019, as shown in the Figures below, prompting a 4.1% daily loss in natural gas on Monday.

Figure 1: Daily US LNG demand by facility. Source: CelsiusEnergy

Figure 2: Daily US LNG demand versus last year. Source: CelsiusEnergy

This is down more than 5 BCF/day from all-time highs in a matter of months and is a serious threat to cancel out production declines and strong powerburn demand that many investors had anticipated would jumpstart a new natural gas bull market.

This article will discuss the reasons for the declines in domestic LNG demand and its potential impact on the supply/demand imbalance.

Historically, the US natural gas supply/demand balance has been largely insulated, driven by temperature patterns and domestic production with imports

This article was written by

Force Majeure profile picture
My investment focus is on the energy sector, particularly natural gas futures, where I take advantage of my degree in meteorology to analyze supply & demand to predict price movements.

Analyst’s Disclosure: I am/we are short LNG. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

I am also short DGAZ and long COG and SWN.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (30)

Well done, FM. Thanks for sharing.
I assume you don’t think much of TELL as well
I think a lot about the William TELL Overture @Truegen . It's Great! As Tony the Tiger would have said.
While the timing and size of the product/product pricing contains many variables, one thing you folks may not want to discount is how US LNG is now assing out piped gas deliveries from Algeria, Malaysia, Russia, and Indonesia. Even LNG from Qatar - the Al Thanis are still trying to sign long term offtakes at ~$7/mmbtu ... pricing tied to oil indices - is facing headwinds with customers in nearby Pakistan and India.

Ukraine just signed purchase agreement for US LNG.
Turkey is not repairing gas line from Iran and is instead importing US LNG.

Fact is, as US producers buy hedges at ~$2.50 HH, as new LNG plants are put up in fast, bite sized modular fashion with pricing at ~$500k/mtpa (contrast with, say, Prelude), US LNG will have a huge impact on global energy markets for decades to come.
That's in the long term @phaedrus1952 , I'm worried about the rest of this year.
Greg_Maryland profile picture
Very nice article.
PT Larry profile picture
Thanks for the article.
Very good report, thanks.
While your short LNG, while it oftem follows LNG price trend, what do yo think of the Px situation for the daughter MLP CQP?
02 Jun. 2020
Same for Tellurian?
Thank you for a fantastic rundown (and detailed analysis) on the European inventory situation. In the swath of bullish nat gat articles, almost all attention has been on the production story, and not enough attention has been paid to the enormous reduction in LNG exports offsetting the production declines, which will continue to weigh on domestic prices through the summer.
No one hardly talks about the weather being hot as hell this summer. Also, industrial and commercial almost back to normal.
That's because Europe is in an oversupply of NG with the possibility that it goes to zero. They are not importing LNG @NatGasGuru .
@kimbillro That's incorrect, of course Europe imports LNG.

"The EU imported the highest ever volume of LNG in 2019 at 108 billion cubic meters (bcm), marking 27% of total gas imports and 22% of the EU's gas consumption, according to the European Commission's (EC) report on the gas market."
kjseagle1 profile picture
really good info and i go to celsius often; now i know you are behind the numbers------ question: what do you like about COG and SWN; just asking as i don't know too much about them.
I am also interested to hear more about COG and SWN @kjseagle1 .
With European gas prices expected to go to zero by the end of the summer with storages being filled earlier than normal, expect this to push down prices in US as well, as many of the LNG cargoes will get canceled through the summer, unless somehow demand in Asia picks up.
ckarabin profile picture
I think that's what the article said. Thanks for the recap
Let's see prices push down below 1.50 @And_D .
Asia demand is picking up
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