U.S. LNG’s summer from hell is almost over, as netbacks show an increasingly favorable environment. While U.S. LNG exporters can breathe a sigh of relief, it’s too soon to reach for the champagne: European storage injections are slowing but remain above last year’s highs, and many European countries are experiencing their highest post-lockdown COVID case counts. Rising Henry Hub prices could also weigh on LNG shipments. While we think the worst is over for LNG exporters, risks remain on both sides of the Atlantic.

Why is Henry Hub rising?

We’re frankly surprised that Henry Hub prices are rising, since the fundamentals do not seem to align with the price enthusiasm in recent weeks. To wit: August temperatures are expected to be cooler than previously expected; U.S. natural gas storage levels are rising; U.S. COVID cases have declined in recent weeks but are expected to rise amid school re-openings, flu season, and more time spent indoors; and COVID cases are rising in key export markets, especially Europe. On the other hand, there has been more optimism on vaccine development and deployment – but most experts believe that most Americans will receive a vaccine only by 2Q2021 at the earliest. It’s possible that the market is also betting on lower future production from oil (and therefore associated gas). There’s some evidence that HH prices are rising on technical (i.e. traders covering short positions) rather than fundamentals. Nevertheless, rising Henry Hub prices raise feed gas input costs for U.S. LNG exporters and, all things being equal, limits export cargoes.   Rising Henry Hub prices don’t seem to align with fundamentals because of storage dynamics. In recent weeks, storage levels across the U.S. South Central region (where Henry Hub and LNG projects are located) started ticking up again, raising the possibility of a storage max-out later in the year. National-level storage data rose above 5-year averages last week on greater storage injections in the South Central and Midwest regions