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France to attract more LNG from the US amid tight PEG/EAX spread

French LNG terminals are likely to keep attracting LNG cargoes from the United States this summer, on the back of an increasing PEG premium to the Henry Hub front month and tight spreads between French PEG and Asian LNG prices.

The United States were France’s first source of LNG supply in both March and April so far, accounting for more than 30% of the total LNG imports in March and 37% in the first half of April.

The PEG May ‘21 contract traced up again in recent sessions after dropping $0.7/MMBtu below the front-month ICIS East Asia Index (EAX) on 9 April.

On 15 April, the PEG front-month contract reduced its discount to the EAX to just $0.3/MMBtu, while it increased its premium to the US Henry Hub front-month to $4.45/MMBtu.

The EAX for delivery in May and June also moved slightly up over the past week , due to higher prompt demand from Asian buyers like India, South Korea and China.

PEG prices increased even more as carbon and coal volatility, below-average temperatures and low wind generation supported European gas products in week 15, which helped closing the PEG front-month discount to the EAX.

HIgher PEG prompt prices slowed injections down at the start of the gas summer , with net withdrawals taking place between 6-15 April.

Because of this, injection-related demand this summer is set to be higher than previously expected as heavily-depleted stocks were further emptied at the beginning of summer. According to traders polled by ICIS, LNG imports in summer months are likely to meet higher injection demand expected this year.

LNG THRESHOLD

While cargoes from Middle East producers like Qatar would still find it more convenient to deliver to Asia rather than Europe because of higher Asian prices and lower shipping costs, France would be more attractive for US LNG vessels.

According to the LNG Edge arbitrage calculator, a cargo departing from Corpus Christi in the US, would need to cover a transportation cost of at least $1.31/MMBtu to reach India, and even more to deliver to either China, Japan or South Korea. The same vessel, however, would just need to cover a cost of $0.58/MMBtu to reach France.

At the current prices, US shippers could potentially profit from a $3.61/MMBtu margin if they deliver to France’s southern terminals of Fos Cavaou and Fos Tonkin. The margin would increase to $3.65/MMBtu if they deliver to Dunkirk terminal and up to $3.66/MMBtu if they deliver at Montoir de Bretagne.

Similarly, ICIS analysts estimate that the cost of transporting LNG from Nigeria- which is also one of the main LNG suppliers for France – is about $0.47/MMBtu while it would be about $1.05/MMBtu to go to Japan. Therefore, even if the cost of gas in France is lower than in Japan, for Nigerian cargoes it would be still convenient go to France, as long as the French discount to Japan remains lower than $0.58/MMBtu.

LNG MAIN SUPPLY SOURCE

LNG imports are likely to remain France’s main source of supply in April , as volumes imported via pipeline could be limited by planned Norwegian maintenance.

Offshore operator Gassco reported that planned maintenance at several plants would curb upstream supply until the end of the month. This could potentially affect inflows at the Dunkirk interconnection point (IP), which is France’s main source of supply via pipeline.

Abundant LNG arrivals to French terminals are set to continue playing a central role in the coming weeks after the record imports seen in March, that led France to become Europe’s biggest LNG importer.

On 16 April, data from LNG Edge suggested that US LNG cargoes should lead the way also in the rest April as seven out of 10 LNG vessels scheduled to berth at French terminals by the end of the month are from the US.
Source: ICIS, By Andrea Battaglia, https://www.icis.com/explore/resources/news/2021/04/19/10629686/france-to-attract-more-lng-from-the-us-amid-tight-peg-eax-spread

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