(The opinions expressed here are those of the author, a market

analyst for Reuters.)

By Gavin Maguire

LITTLETON, Colorado, Nov 21 (Reuters) - United States

exports of LNG to Europe are set to jump in the coming weeks

after the price spread between domestic natural gas and Europe's

main gas pricing hub hit one-year highs.

The price differential between U.S. Henry Hub natural gas

futures - the U.S. gas price benchmark - and the TTF gas

trading facility in The Netherlands has widened by over 30% from

the current 2024 average for delivery during the coming winter.

That's signalling bumper profit potential for U.S. exporters

of liquefied natural gas (LNG), who are increasing the volumes

of gas flows to export facilities.

The increased LNG shipments to Europe will trigger a revenue

rise for the largest U.S. LNG exporters, including Cheniere

, TotalEnergies and Freeport LNG.

But higher demand for natural gas at LNG export terminals

also raises the potential for a further climb in U.S. domestic

gas prices, which are already at their highest since January.

That means that while U.S. LNG exporters have a strong

opportunity to boost revenues, they also face the risk of

reviving inflation and triggering a backlash against the export

of energy products needed for power generation at home.

EUROPE BOUND

U.S. natural gas prices are currently around 80% lower than

TTF prices, giving LNG exporters the opportunity to profit from

the wide price differential between the gas grades.

So far in 2024, Henry Hub gas futures have averaged around

$8 per million British thermal units (MMBtu) less than TTF gas

futures, according to LSEG.

That price differential in favour of U.S. suppliers has

encouraged sustained U.S. LNG exports to Europe, which have

totalled around 82 million cubic meters over the first 10 months

of the year, according to Kpler.

However, an even wider price spread is projected through the

coming winter which looks set to spur even larger shipments.

Forward markets from November through the end of March 2025

indicate that the Henry Hub-TTF price spread is roughly $11 per

MMBtu. That's a $3 increase over the 2024 average so far, and a

strong incentive for U.S. exporters to boost shipments further.

Europe has bought over two-thirds of U.S. LNG shipments

since 2022, when Russia's invasion of Ukraine triggered cuts to

Russian gas pipeline flows to Europe and sparked a scramble by

European gas buyers to plug supply gaps with LNG.

And U.S. LNG exporters are keen to maintain market share in

Europe as the cost of serving European buyers is far lower

compared to customers in Asia, due to far longer journey times

to buyers in Japan, China and South Korea.

The roughly 12-day trip from Cove Point LNG terminal in

Maryland to Wilhelmshaven in Germany - a major European LNG

import hub - is a third of the time of the trip to Guangdong in

China, the world's largest LNG buyer.

That relatively quick turnaround time means U.S. exporters

will prefer to prioritise Europe over other destinations over

the coming months.

However, Europe's relatively strong gas prices means the

continent is also prized by other sellers.

DIVERSIONS & CONGESTION?

LSEG forward price data indicates that TTF prices are around

$2 per MMBtu higher than LNG prices based off Brent-indexed LNG

contracts, which utilize the price of Brent crude oil in

formulating LNG prices.

That price premium in Europe has already triggered traders

to divert some cargoes from other markets, with the aim of

capturing the higher prices available in Europe compared to

other regions.

Any sustained price strength in Europe relative to other

markets will spur traders with unsold cargoes from Qatar and

elsewhere to focus on finding buyers in Europe.

That in turn will provide stiff competition for U.S.

exporters, even if U.S. sail times to Europe are roughly a week

shorter compared to shipments from Qatar.

However, more competition for buyers in Europe will in time

serve to depress European prices, which should then erode the

economics of sending LNG to Europe from distant origins.

That bodes well for U.S. exporters, as long as domestic gas

prices remain vastly cheaper than gas supplies in other LNG

export hubs.

The main risk for U.S. LNG exporters is that domestic gas

prices quickly push higher, which could be triggered by the

enduring strong gas demand at LNG export terminals alongside a

sharp increase in domestic gas use for heating.

Such a scenario could spark backlash among U.S. power

consumers, who are already reeling from high inflation and could

push for measures that slow the flow of U.S. natural gas to

overseas consumers.

That means U.S. LNG sellers may be need to be content to

exploit the current open sales window to Europe, and then dial

back sales volumes if domestic prices gather more upside

momentum.

The opinions expressed here are those of the author, a market

analyst for Reuters.