How and why do energy cargoes change destination? Netbacks and capacity explained

• Netbacks help estimate where value may be highest across destinations
• Utilisation rates indicate whether infrastructure can support additional flows
• Interpreting both together provides a more realistic view of how energy trade flows evolve

As energy security becomes a greater focus, understanding what drives shipping flows is becoming increasingly relevant. Energy cargoes do not always arrive at their original destination. A shipment can change course while already at sea, responding to changing market conditions. Flexible spot cargoes, in particular, can be diverted from one region to another when arbitrage opportunities emerge, allowing traders/professionals to capture higher prices in alternative markets.

For professionals working in commodities and energy, this creates a practical challenge: how are decisions made about where a cargo should go when both prices and physical constraints are constantly shifting?

Two broad types of signals are often considered:

• Destination economics – how pricing influences destination choice
• Infrastructure constraints – whether a destination can physically receive cargo

Understanding how these signals interact can provide useful context for why flows change direction, and what this can indicate about wider energy market dynamics.

When comparing potential destinations, professionals often need a simple way to assess commercial attractiveness. One commonly used approach is to consider netbacks.

Rather than being treated as a strict formula, netbacks are often viewed as a summary of potential destination profitability. They bring together key elements such as market prices and transport costs into a single, comparable view of potential value across destinations. However, the results can vary depending on the assumptions and methodology used.

In LNG markets, netbacks are calculated by subtracting voyage costs from the landed price. Depending on the approach, costs related to regasification and feedgas may be excluded.

Source: LSEG Workspace

This chart shows historical changes in netback prices, which may be viewed alongside significant world events.

In oil and refined products markets, netbacks are used to compare the value of refined products with the underlying crude input. They may also be considered alongside refinery margins as an indicative view of value generation within the refining process.

To integrate an additional layer into shipping flows, it is also important to consider infrastructure constraints, specifically, the utilised capacity of energy facilities, often referred to as the utilisation rate.

Utilisation rates indicate how much of a facility’s total capacity is currently in use, providing a straightforward way to assess the level of available spare capacity.

Infrastructure constraints can be an important factor alongside netbacks when determining cargo destination decisions. In some cases, facility capacity may be booked several months in advance. Alternatively, refining facilities may experience unexpected outages that limit their ability to receive additional cargo. Unplanned outages and planned maintenance in oil and refined products markets can be monitored using industry data sources, such as Industrial Info Resources (IRR) data available in LSEG Workspace, which covers outages at a unit level for more than 700 refineries around the globe.

As a result, even where netbacks appear favourable, limited available capacity can restrict the ability to import more products.

For this reason, professionals often assess price signals and system capacity together, rather than relying on either one in isolation.

In some instances, the utilisation rates of LNG infrastructure may exceed 100%. This occurs when terminals and plants temporarily operate above their nameplate capacity under certain conditions. For example, facilities, such as Zeebrugge in Belgium, may process volumes beyond their stated regasification capacity over short periods by utilising operational flexibility and optimising throughput.

As a result, readings above 100% typically signal tighter operating conditions, rather than a permanent increase in capacity.

Capacity definitions can also vary. In the United States, for example, facilities may operate under both baseload and maximum authorised capacity levels. Comparing utilisation across these metrics helps assess whether spare capacity could be available.

To extend this analysis, shipping flow data, available in tools such as the Flows app in LSEG Workspace, can help track current and past flows and monitor shipments reaching a given location.

Overall, netbacks and utilisation rates reflect different aspects of LNG flows. When considered together, they may help inform a more nuanced interpretation of how pricing signals and infrastructure availability could influence potential cargo destination decisions.

While netbacks and utilisation rates are valuable signals, they can be misinterpreted when viewed in isolation. Some common considerations include:

• Capacity constraints are not always captured by price signals

A higher netback does not necessarily mean a destination can accommodate additional cargo.

• Utilisation levels are not fixed

Capacity may vary depending on operational flexibility, infrastructure, and regulatory conditions.

• Short-term movements do not always reflect broader trends

Both price signals and utilisation levels can change quickly and may be better interpreted alongside wider market developments.

Recognising these limitations can support a more balanced interpretation of flow dynamics.

These dynamics are explored further in a recently conducted webinar, which examined how these signals play out across real market scenarios.

Building on this, related learning pathways covering oil and products markets, alongside training videos focused on gas markets, provide additional context.