Subdued EU Gas Use Cuts Inbound LNG Shipments, Significant Disruption Likely Needed to Revive Futures

Subdued EU gas demand is slashing shipments of liquefied natural gas (LNG) to the continent when compared to previous years. Despite catching a bid in the spring, renewed weakness is taking hold of European and US natural gas benchmarks once again, which have begun giving up slight gains seen earlier in the month. This reversal has likely been inspired by record high levels of inventory on standby.

Europe’s gas stockpiles ended the 2023-2024 heating season nearly 60% full and a replay of last year, when the continent’s inventories reached 90% capacity months ahead of schedule, appears to be on tap. A significant disruption would likely need to occur for gas inventories to be drawn down at an aggressive rate anytime soon. However, such a factor may now be coming down the line in the form of generative AI.

Related ETFs: Energy Select Sector SPDR Fund (XLE), United States Natural Gas Fund, LP (UNG)

European benchmark Dutch TTF natural gas futures dipped to lows under €31.30 per megawatt hour (MWh) yesterday, retracing a portion of the gains that the contract accumulated in mid-July. That short-lived bump came on the back of a shutdown at the Freeport liquefied natural gas (LNG) export plant in Texas, which was slammed by Hurricane Beryl on July 8. Freeport is the US’s second-largest exporter at an annual shipment capacity of 15 million metric tons of LNG and Europe has become increasingly reliant on overseas shipments of gas from the US since various EU nations began cutting themselves off from pipeline gas supplies originating in Russia. This helped boost the US to the top spot among global LNG-exporting nations in 2023. Full year exports of LNG from the US rose by nearly 15% to 88.9 million metric tons, with well over 60% of those shipments flowing to Europe in some months. The temporary Freeport shutdown did result in a temporary bottlenecking of supplies and a backup of tankers in the Gulf of Mexico, but the amount of gas flowing to the facility was back to nearly 50% capacity by Monday.

Elevated shipments of American gas abroad have done little to bolster US benchmark prices recently, however, as Henry Hub futures remain subdued. The average monthly spot price of US gas throughout the first six months of the year is at its lowest level since 2020. Further, shares of the United States Natural Gas Fund (UNG) tumbled to its weakest close ever on July 17. As of Wednesday morning, UNG remained down by more than -30% in the year-to-date period…