Why has the US-Europe LNG price spread widened to $22, and what underlies the diverging global natural gas supply-demand dynamics?

Chapter III: Profit-Cost Analysis and Risk Mitigation Case Studies for Market Participants 3.1 Profit and Cost Analysis Across Industry Segments LNG Importer Profit In August, the theoretical arbitrage margin for LNG imports (including both long-term contracts and spot purchases) delivered via road transport stood at RMB 746/ton (essentially flat month-on-month but up RMB 792/ton year-on-year). Falling crude oil prices slightly reduced long-term contract import costs, offsetting the impact of off-season price cuts at domestic receiving terminals; thus, the import arbitrage margin remained at a multi-year high. Domestic LNG Trader Gross Margin In September, the average gross margin for domestic LNG traders was RMB 481/ton (down RMB 132/ton month-on-month). Rising upstream feedstock gas costs pushed up ex-factory prices, while downstream off-take capacity remained constrained, squeezing the markup space in the trading segment. Gas Procurement Cost for End-Use Direct-Supply Customers (City Gas Utilities or Large Industrial Users) In September, the average gas procurement cost for end-use direct-supply customers (city gas utilities and large industrial users) rose to RMB 3.75/cubic meter (up RMB 0.26/cubic meter month-on-month and RMB 1.16/cubic meter year-on-year), primarily driven by geopolitical tensions pushing up import costs and consequently lifting pipeline gas auction prices. 3.2 Risk Mitigation Case Study for Market Participants An LNG importer purchased a batch of liquefied natural gas (LNG) on August 28, with delivery scheduled for September 28 and a volume of approximately 3.5 million MMBtu. The pricing benchmark was the Henry Hub (HH) natural gas futures settlement price. Without hedging, the importer would face exposure to September natural gas price volatility: rising prices would increase procurement costs, while falling prices could lower them. Assuming no hedging, the spot price on September 28 might rise relative to that on August 28, exposing the importer to higher procurement costs. To mitigate this risk, the importer decided on August 28 to buy NG or MNG futures contracts to lock in the procurement cost. Full hedge effect: Additional spot losses are offset by futures gains, resulting in an actual cost of USD 2.888/MMBtu. The Henry Hub (HH) natural gas futures contract is a key energy derivative launched by the New York Mercantile Exchange (NYMEX), part of the CME Group. It offers two contract specifications: the standard contract (ticker: NG) and the micro contract (ticker: MNG). Their primary difference lies in contract size, though both are priced against Henry Hub gas prices. In summary, through futures trading, the importer locked in its procurement cost at USD 2.888/MMBtu as of August 28, eliminating price volatility risk. When facing volatile market conditions, market participants’ core objective is managing price volatility risk and reducing uncertainty in operating profits. Hedging via futures stabilizes operating profits, lowers financial risk, optimizes resource allocation, and ultimately enhances market competitiveness. Chapter IV: Outlook for Major Global Natural Gas Markets Next Month US Market Outlook In October, the US natural gas market will exhibit a coexistence of seasonal demand transition, robust export performance, and elevated inventory levels. On the supply side, production from the Lower 48 states is expected to remain high in October, though growth may moderate. Associated gas from the Permian Basin continues to drive output gains; however, some producing areas may see voluntary production curtailments due to low prices, and routine autumn maintenance may further limit upside potential. Regarding inventories, as the injection season nears its end, stocks are likely to continue rising—reaching near a ten-year high by end-October—maintaining a comfortable supply surplus.

November Natural Gas Outlook: Potential Impacts of Temperature Changes and Wind Power Generation

1.1 US Futures Market In October, Henry Hub (HH) natural gas futures overall exhibited a pattern of initial decline followed by recovery, with the monthly average price rising both month-on-month and year-on-year. Source: CME From an overall US supply-demand perspective in October, supply remained stable with modest growth, yet prices rose month-on-month and year-on-year, supported by heating demand from late-month cold air. On the supply side, according to EIA weekly natural gas data, the average daily natural gas production from the Lower 48 states in October hovered around 107.8 Bcf/d, essentially unchanged year-on-year. According to Baker Hughes data, the number of active US natural gas rigs stood at 121 in October—up 3 from last month and 20 higher than a year ago. As of the week ending October 24, total US natural gas inventories reached 3,882 Bcf, up 74 Bcf from the prior week and 29 Bcf above year-ago levels (a +0.8% YoY increase), and 171 Bcf above the five-year average (+4.6%). Thus, US natural gas supply maintained steady production in October, while inventories remained elevated versus both year-ago and five-year average levels—with the YoY surplus widening and injection pace accelerating. On the demand side, temperatures shifted gradually from mild to cooler across October. In the first half, regional temperature patterns emerged: although the South remained relatively warm, it had already cooled from September levels, leading to waning cooling demand. Meanwhile, northern and central regions experienced only brief cooling from Canadian cold fronts but otherwise retained seasonal warmth, keeping power-generation cooling and heating demand generally moderate. From mid-month onward, a colder air mass over the Northeast marginally boosted heating demand; in the latter half, successive cold fronts swept across northern and central US regions, causing pronounced cooling and significantly increasing residential heating demand. According to Kpler shipping data, US LNG exports totaled 9.936 million tons in October—a 9.78% increase over September and a 33% year-on-year rise. Overall, October’s price movements were primarily driven by rising local heating demand and strong export volumes. Despite sustained production growth and ample inventories—where injection pace exceeded expectations—natural gas prices rebounded before reaching last month’s lows, buoyed by cold-weather-driven heating demand. The cumulative rebound reached as high as 40%, driving the monthly average price higher both month-on-month and year-on-year. Intra-month price movement showed a “small rise–decline–sharp rise” pattern. In early October, frequent hurricane activity triggered supply concerns, pushing prices up over 5%. Subsequently, stable production, high inventories, and moderate demand during the climatic transition period led to a relaxed supply-demand balance, initiating a price decline that persisted until mid-month. In late October, however, the US experienced a marked weather shift: Arctic air penetrated deep into the Plains and Midwest, triggering the first widespread lake ice formation across the Great Lakes region. As the cold front expanded eastward, residential heating demand surged notably. Coupled with persistently strong exports, these factors collectively drove a sharp price rally, lifting end-month prices to their highest level since late March. 1.2 European Futures Market

US Natural Gas Inches Up on Colder Weather, Higher Flows to LNG

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US natural gas futures rose slightly on forecasts of colder weather boosting heating demand and increased flows to LNG export terminals, while production rebounded following hurricane-related shut-ins.

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US Natural Gas Inches Up on Colder Weather, Higher Flows to LNG

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