Key facts
- High shipping costs have closed the arbitrage between U.S. LNG and Asia for the rest of the year.
- Most U.S. spot LNG cargoes are being redirected to Europe due to lower freight costs.
- Gas prices in Asia and Europe have soared due to choked LNG flows from the Middle East.
- EU gas storage sites were at about 70% capacity on September 27, below the five-year average of 86%.
- Germany's gas storage is only about 57% full, raising concerns about supply security.
Europe is currently benefiting from a closed arbitrage between the U.S. Gulf Coast and Asia, leading to a redirection of most U.S. spot liquefied natural gas (LNG) cargoes toward Europe due to lower freight costs. This shift could offer relief to concerns about winter gas supply in the region.
According to vessel-tracking data compiled by Bloomberg, Europe has been drawing more LNG cargoes away from Asia over the past month. Deliveries to Europe have been only 4% lower than a year ago, a significant improvement from a 30% annual decline in early August.
The global gas market has seen prices soar in both Asia and Europe over the past seven months due to choked LNG flows from the Middle East. Prices peaked earlier this month at their highest level since the 2022-2023 energy crisis as buyers compete for available supply that bypasses the Strait of Hormuz.
While Asia was winning the competition for LNG earlier in the spring and summer, the closed Atlantic-Pacific arbitrage for the remainder of the year means Europe is now importing more prompt LNG supply, albeit at a high cost. The economics of shipping spot LNG cargoes are currently unfavorable for Asia.
This influx of LNG could be a major relief for Europe's preparedness for the winter. However, EU gas storage sites were only about 70% full as of September 27, according to Gas Infrastructure Europe, which is well below the five-year average of 86% for this time of year. Some major economies, including Germany, have even lower-than-average storage levels. Germany's storage facilities are only about 57% full, prompting concerns about supply security if the upcoming winter is colder than previous ones.