BREAKINGVIEWS-LNG arbitrage creates winners from energy shock

By George Hay

LONDON, March 27 (Reuters Breakingviews) - Rising energy prices, a result of the Gulf conflict, create many losers. Some of the few beneficiaries, though, may be those who can get their hands on cheap U.S. gas and sell it to Europe or Asia.

As recently as January, this trade was a dud. Cold weather meant U.S. gas priced off the so-called Henry Hub domestic benchmark cost over $7 per million British thermal units (mmBtu), compared to its usual level of $3. Add in a typical “tolling charge” exceeding $2, to cover the cost of chilling the gas into liquid for transportation, and then factor in expenses for shipping and insurance required to get the liquefied natural gas (LNG) to customers overseas and regasified. The all-in cost approached the roughly $12 per mmBtu level that prevailed on the European benchmark Dutch Title Transfer Facility (TTF).

The Iran war, which has seen 20% of global LNG supply blocked behind the Strait of Hormuz, changed the equation. U.S. gas prices have barely budged from $3 per mmBtu, thanks to ample domestic supplies, while European TTF prices have surged to $18 per mmBtu. Asian ones, on the Japan-Korea Marker (JKM), are even higher.

This benefits big energy groups with so-called offtake agreements giving them the right to buy cheap U.S. LNG. While Shell SHEL.L, TotalEnergies TTEF.PA and BP BP.L don’t give chapter and verse on their positions, they all have access to millions of metric tons of U.S. LNG in 2026, according to energy consultancy Wood Mackenzie. Taking this cheap American supply, and selling it across the Atlantic, will be lucrative.

The company best placed to exploit the spread, however, is Venture Global VG.N. That might sound odd. The $41 billion U.S. group isn’t a trader per se. It’s one of a cadre of American producers that operate gas liquefaction facilities on behalf of LNG buyers like Shell and TotalEnergies, which it does in return for a tolling charge. But unlike other U.S. producers, where LNG supply agreements are largely pre-contracted, only 69% of Venture Global’s 35 million tons or so of 2026 production has already been sold at lower pre-war prices.

That leaves around 11 million tons, or just under 600 million mmBtu, that Venture Global could deploy for the new price arbitrage. Because it doesn’t have to pay the tolling charge to itself, the company may enjoy an even wider spread than Shell, BP and other offtakers. If the transatlantic LNG price gap, after associated costs, were to hover around $10 per mmBtu, the company would make almost $6 billion in extra revenue this year, which compares with a total top line of $14 billion in 2025.

The TTF-Henry Hub spread, meanwhile, might widen. TotalEnergies boss Patrick Pouyanné said recently that the European benchmark could hit $40 per mmBtu. UBS analysts estimate that every $1 per mmBtu widening in the TTF-Henry Hub spread adds about $600 million to Venture Global’s EBITDA. All that explains why the LNG group's shares are up over 80% since the start of the month.

There is one potential cloud. Venture's big new project, Plaquemines, is in the “commissioning phase”, a transition stage between the initial production of LNG and the formal handing over of supply to offtakers. In the past, some customers have claimed suppliers unduly prolonged this commissioning phase, rather than handing over the gas. A similar disagreement after 2022 turned into legal battles between Venture and European groups.

That said, Venture has so far won or settled the majority of these disputes. All else equal, the U.S.-Europe LNG arbitrage looks like one of 2026’s more obvious golden tickets.

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CONTEXT NEWS

European gas prices could hit $40 per million British thermal units (mmBtu), over the summer if the Gulf conflict persists, TotalEnergies Chairman and CEO Patrick Pouyanné told CNBC on March 24.

Pouyanné said prices could move substantially higher than their current $18 per mmBtu if the war drags on, since Asian demand rises over the summer just as Europe looks to refill its storage.

Roughly 15% of TotalEnergies’ production is offline following attacks on facilities in the Gulf, Pouyanné said.

Venture Global and Edison said on March 26 they had reached an agreement to settle a long-running arbitration dispute related to accusations that the American exporter of liquefied natural gas failed to provide the Italian firm with contractual shipments.

In a statement to Breakingviews, Venture Global said its production of commissioning cargoes during the construction and commissioning of its facilities had been "a critical stabilizing force in the global LNG market" during both times of price stability and periods of historic disruption. "During this latest period of disruption due to the conflict in the Middle East, the United States - and its LNG industry - are once again playing a critical role in supporting global energy security and Venture Global stands ready to keep energy flowing to our allies and customers worldwide," it said.

"To be clear, fluctuating market conditions have no impact on our previously communicated contractual schedule," it added. "As previously stated, Phase One at Plaquemines remains on target to declare COD (Commercial Operation Date) in Q4 2026.”