Commodities Traders Find Huge Arbitrage Opportunity As LNG Ships Head To Europe


A dizzying rise in natural gas prices in Europe continued Tuesday, catapulting the benchmark to a new all-time high with higher premiums than Asia and the United States and creating huge arbitrage opportunities for U.S. liquefied natural gas (LNG) traders.

Commodity traders with uncommitted LNG shipments from the Atlantic Basin to Asia via LNG carriers are changing their routes to supply European customers willing to pay a high premium.

First month Dutch futures gained 33.55 euros / MMBtu from the previous day to close at 182.30 euros, a new record

The rally of European natgas has turned parabolic in recent weeks after the certification of the controversial Nord Stream 2 gas pipeline from Russian company Gazprom PJSC. delayed until july, Russian gas flows to the continent plunged, France nuclear power generation collapse, declining wind power production in Germany, persistent cold weather, Europe’s overall gas supply at abnormally low levels and growing geopolitical concerns over the Russia / Ukraine border.

The spread between European and US natgas prices stands at 52 / MMBtu, well above its 15-year range. To put this in context, natural gas markets in Europe are tight while those in the United States are well supplied. This is the perfect opportunity for traders to source cargo from the United States on the Henry Hub-linked index and schedule the move to Europe. If we can find an LNG carrier, the arb trade will print money.

“Soaring spot gas prices in Europe are causing rare movements of cargo,” said Alex Froley, an analyst at the research consultancy firm ICIS, which tracks LNG carriers.

In recent weeks, US LNG ships bound for Asia have deviated from their planned routes to Europe. This has happened several times. Froley said a U.S. LNG carrier called Minerva Chios was near India on December 15 and turned around for delivery to Europe.

Another American LNG carrier made a U-turn near the Strait of Malacca while an Australian LNG carrier began a rare trip to Barcelona.

“It is believed to be the first Australian LNG in Europe since 2009, when there were some Australian shipments to the UK and France,” he added.

Torbjorn Tornqvist, founder and managing director of Gunvor, the world’s largest independent LNG trader, said that in addition to normal LNG flows to Europe, an additional 15-20 ships will arrive in Europe this month and the next.

“Europe is clearly setting the price for attracting a lot of LNG and it needs it,” Tornqvist said. “Without it, the supply situation could be very serious depending on the weather. Inventories are already low and exceptionally will be by the end of winter.”

Goldman Sachs commodities analyst Samantha Dart shows how LNG shipments to Europe have accelerated relative to Asia.

The high charter rates don’t matter to traders who take advantage of this crazy arb commercial impression like an ATM.


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