Open arbitrage in economics and tight LNG-gas spreads are draining liquidity in North-West Europe.

Liquidity in the Northwest European LNG markets has decreased due to tight LNG-gas economics and increased global competition for shipments, according to traders.

Since the conflict in the Middle East began, approximately 20% of global LNG flows from that region have been reduced. This supply reduction has created instances of demand destruction in various global LNG and natural gas markets as countries seek more affordable options for domestic needs.

Even though Europe has entered its injection season, the rate of gas injections into underground storage has been slow. A flat-to-backwardated forward curve and limited LNG-TTF spreads have resulted in little motivation for purchases in Europe.

While Europe usually imports LNG and pipeline gas during the summer to prepare for the winter heating season, the decrease in global LNG supply has altered trading activities in Northwest Europe.

With opportunities for arbitrage in Asia and other high-demand markets, LNG-TTF spreads in Europe have strengthened, making shipments more appealing.

On June 3, Platts reported the DES Northwest Europe marker for July at $16.643/million British thermal unit, an increase of 46.4 cents/MMBtu from the previous day and a 4-cent discount compared to the July TTF hub futures price. The LNG-TTF spread of minus 4 cents is the strongest differential seen since the plus 50 cents/MMBtu recorded on March 2, immediately following the start of the conflict in the Middle East.

Current LNG-TTF spreads are rendering it unprofitable to import LNG into Northwest Europe. Normally, LNG prices are lower than domestic gas prices, as buyers incur additional logistics expenses like regasification, storage, unloading, and grid injection.

In Northwest Europe, the breakeven point for terminals, considering only variable costs, is around 20-30 cents, traders noted. Therefore, LNG-TTF spreads must be at least minus 20 to 30 cents to encourage buying activity in the region, as per traders.

Consequently, bids and offers in Northwest Europe, as well as trading values, have shown fluctuating spreads as traders adapt their strategies and manage their portfolios.

On one side of the market, traders with flexible logistics have been redirecting cargoes to Asia or other high-demand markets like Turkey, Greece, and Egypt.

Data from S&P Global Energy CERA indicates several Atlantic diversions to premium destination hubs in May and early June, with traders shifting their Atlantic volumes to these hubs.

These traders have been paying a premium compared to other European regas capacity holders, allowing them to cancel or offload their slots and redirect their cargoes for better returns in premium markets.

While some offers are priced at a premium to TTF for July, others are still suggesting TTF minus 10 cents for DES NW Europe. Additionally, there are bids either flat to TTF or at minus 10, while some bids range from minus 30 to minus 40 cents.

"Some are still offering larger discounts to enable viable imports, but with open arbitrage and JKM prices relative to Europe, most sellers are unwilling to sell below TTF at the moment," stated an LNG trader. "Some are trying to cover costs while others are bidding higher to address shortages, leading to a disparity in sentiment and tight spreads that diminish liquidity."

Conversely, downstream companies in Europe have maintained wide bids to cover their regasification costs. These companies have managed to keep their bids at reasonable discounts to gas hub prices, allowing them to handle their downstream portfolios effectively.

"Liquidity has declined... If you can't cover terminal costs, you'll cancel your slot and divert the cargo elsewhere," remarked a second trader. "Unless you're trading DES-DES or facing a shortage, you won't pay the premiums being discussed; you need to cover variable terminal costs in Europe."

Due to differing sentiments across Northwest Europe, liquidity has slowed as trading houses and portfolio players adjust their supply positions through diversions, while downstream companies seek to replenish their positions with pipeline gas.

European LNG imports reached 9.48 million metric tons in May, an approximately 8% decrease year over year. Month-over-month, imports fell about 4.6% from the 9.94 million metric tons imported in April, according to CERA data.

In May, European LNG utilization was at 44%, reflecting a 2% drop month over month and a 4% decline year over year. Utilization peaked in February at 64%, but regasification utilization saw an 18% drop from February to April, CERA data revealed.

Traders anticipate that European liquidity will improve as the demand for storage injections drives LNG purchases.

"I believe Europe will eventually recognize its LNG needs and the current shortage. Regardless of spreads or market conditions, we will need to purchase to fill storage," a third trader noted. "Either a contango must develop, TTF must surge, or DES NWE must rise to remain appealing for cargoes during peak periods."

Europe is competing with Asia for flexible cargoes from West Africa and the US, as global importers attempt to replace lost volumes amid ongoing conflicts.

On June 3, Platts assessed the July JKM at $19.011/million British thermal unit, indicating a spread of 2.368/MMBtu between JKM and Northwest Europe.

Platts evaluated the US LNG arbitrage from North Asia through the Panama Canal at 48.5 cents/MMBtu, the lowest level since May 12, when it was assessed at 41.2 cents/MMBtu.

CERA predicts that Europe, including the UK and Turkey, will import 57.16 million metric tons during the typical April-September summer-injection cycle, an increase from 55.69 million metric tons during the same period last year.

Notably, CERA projects that Europe will import 40.47 million metric tons in the fourth quarter, marking the highest quarterly imports on record and surpassing the 35.45 million metric tons imported in Q4 2025.