U.S. exports of liquefied natural gas have been on a record-breaking streak this year, on track to book a 40% annual surge in November, thanks to strong European demand. There is just one problem: this strong demand is fueling higher prices; higher prices are eating into LNG exporters’ profits.
When European energy supermajors went after Venture Global, they accused the company of making billions on the spot market while violating its contracts with the supermajors. Venture Global did indeed make billions—and it wasn’t the only one. Europe suddenly found itself with 30% less pipeline gas imports and had to switch to LNG, whatever the price. This last part is important, because, since 2022, a lot has changed, and not for the better when it comes to the biggest market for U.S. liquefied gas.
The collective EU economy has not been doing very well in the past three years. Part of the reason, ironic as it is, is higher energy costs, made higher by transition-related taxing and the switch from pipeline gas to LNG. LNG cannot be on par with piped gas on price simply because its production is more complicated, adding to costs, similar to the cost difference between so-called grey hydrogen and green hydrogen; different production processes result in different prices.
Now, a new aspect is emerging in the price dynamics of LNG: higher demand at home due to seasonal variations, and Big Tech’s rush to secure energy supply for future data centers is adding to record demand from LNG exporters. As a result, Henry Hub topped $5 per million British thermal units this week. This is certainly lower than the over $8 per mmBtu price the market witnessed in 2022, but it is also notably higher than the November average of $3.79 per mmBtu, not to mention the $2.12 per mmBtu that was the average for November 2024.
Higher prices could certainly be passed on to customers. Europe, for one, has little alternative to U.S. liquefied gas. First, because European buyers are still sceptical of long-term contracts, on which Qatar—the other big LNG supplier to Europe—insists, and second, because it has committed via the European Commission to buy $750 billion worth of U.S. energy commodities.
Yet there is a problem with passing the whole additional cost to customers: they might go broke and stop being customers. That’s just the crudest scenario, however. In the case of Europe and U.S. LNG, the problem right now is that while U.S. gas prices go up, Europe’s gas prices are actually coming down because there is no shortage of supply—even if the price is climbing higher.
Reuters’ Ron Bousso reported this week that the price differential between Henry Hub and Europe’s TTF had slimmed down to $4.70 per mmBtu. This is down from $12 per mmBtu at the start of 2025 and the narrowest differential between the two since April 2021, Bousso noted, and it is eroding LNG sellers’ profit. One might argue that the current shrinkage between Henry Hub and TTF is eroding unnaturally high profits resulting from a supply-squeeze related price spike back in 2022. Since then, European gas prices have declined by as much as 90%--and the price sensitivity of U.S. LNG is beginning to show. It might get even harder to keep profits solid in the coming years, as well.
According to estimates from BloombergNEF, electricity demand from data centers in the United States could surge to 106 GW by 2035. This, Zerohedge wrote, is much higher than other electricity demand estimates, even as warnings begin to emerge that all these gigantic demand projections might end up being nothing more than speculation. Even if these gigantic projections do not materialize, demand for electricity is going up, even with President Trump’s cancellation of the transition agenda and the consequent slump in EV sales, for example.
The higher the demand for electricity at home, the higher the gas price because the U.S. sources a lot of its electricity from gas-fired power plants, and with a very good reason called reliability. Meanwhile, demand for U.S. LNG in Europe is not about to go down: the EU just boasted it had agreed a total ban on Russian energy imports, including LNG, of which the EU has been importing record amounts since last year.
Meanwhile, U.S. energy companies are building more LNG export capacity—which will add to the pressure on margins once completed. Since the start of 2025, some 83 billion cu m in new liquefaction capacity has been approved for development in the United States. If it all gets built, it will drive higher gas demand from the LNG industry, whose share is being estimated to rise from 13% of total gas demand in the country to as much as 20% by 2030.
“U.S. LNG has made outstanding margins since late 2021, but those margins have come back to more normal levels now as the market has stabilised and new LNG capacity starts coming online,” Saul Kavonic, head of energy research at MST Marquee, told Reuters’ Bousso. Now, the industry has to come to terms with this new normal.
By Irina Slav for Oilprice.com
