US Gas Prices Lag Behind European Counterparts Due to Liquefaction Constraints

US gas prices rose 1.78% to $2.88 per MMBtu on Monday, despite being heavily influenced by global events. In contrast, European gas prices surged 4.87% to near $28.20 per MMBtu at the Dutch TTF market. This disparity is largely due to physical constraints in liquefying and transporting US natural gas.

The US-Iran memorandum of understanding signed in June has led to a persistent risk premium embedded in Henry Hub prices, which are currently trading at roughly a tenth of the amplitude compared to European gas prices. The mechanism reaching Henry Hub is the pull on Gulf Coast feedgas, with deliveries to export terminals averaging 19.1 Bcf/d last week and peaking at 19.6 Bcf/d Friday.

However, the terminals cannot take more, capping the premium at around a Bcf or two per day. The EIA forecasts US working gas inventories reaching 3,969 Bcf on October 31, which would be 5% above the previous five-year average and remove the scarcity premium that a cold winter would otherwise generate.