Natural gas: Global price convergence delayed until 2028 - Societe General

Societe Generale analysts Michael Haigh and Jeremy Sellem say disruptions to Qatari LNG capacity and slower recovery of Gulf exports have delayed global gas-price convergence. They now expect US-Europe LNG arbitrage profitability to approach zero only by December 2028, implying a longer period of regional price dislocations before TTF, JKM and Henry Hub move towards tighter correlation.

US Europe arbitrage closure delayed by conflict

"We expect the LNG glut and the regional convergence in pricing to be delayed but not cancelled. The war has pushed global gas-price convergence back by more than two years. Before the war rapid infrastructure growth meant US-European gas-price convergence was expected by early 2027, as the arbitrage for shipping US LNG to Europe approached zero."

"Convergence is now pushed back to the end of 2028. With Qatari exports not expected to recover to pre-war levels until end-2027, Europe remains reliant on US LNG for longer. Current forward curves suggest US-Europe LNG arbitrage profitability only approaches zero around December 2028, delaying the emergence of a genuinely integrated global gas market."

"The next wave of LNG infrastructure should accelerate the convergence of global gas markets. Based on projected liquefaction additions through 2030, our regression suggests the TTF-JKM correlation could climb from around 0.79 today to 0.90 by 2028, moving towards near-perfect correlation by the end of the decade."

"The continued expansion of LNG infrastructure should ultimately create a deeper, more flexible and increasingly interconnected global gas market, narrow regional price differences and pushing TTF, JKM and Henry Hub towards greater convergence. But the US-Iran war has interrupted that process. By damaging existing Qatari capacity, delaying future supply growth and disrupting flows through Hormuz, the conflict has pushed the expected LNG glut from early 2027 to late 2028."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)