LNG Bottlenecks Are Emerging In Crisis-Stricken Europe

European countries have boasted that their gas storage facilities have been filled to higher than usual levels before the onset of winter. Yet more LNG shipments are arriving in Europe at such a rate that they are clogging ports. And freight rates are through the roof, adding to record LNG prices. Earlier this week, the media reported that there were more than 30 methane tankers stopped off the coast of Spain, waiting to unload at one of its regasification terminals. Clearly, these terminals were not enough for the increase in LNG imports in the country, which has the largest number of LNG import terminals in Europe, with a total of six.

However, Spain is not the only one in an “exceptional operational situation”, as the Madrid government called it. There are dozens of LNG tankers waiting to unload or serving as floating storage near other European ports as well. And as the LNG race to Europe continues, a major shortage of LNG tankers looms.

“Every serious natural gas buyer has taken LNG carriers into their portfolio,” Jefferies head of shipping research Omar Nokta said. saying the Wall Street Journal. “There is very limited capacity and it is very expensive to get it.”

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It is the oldest of the laws on supply and demand at work, but this same law is also raising freight rates for LNG carriers, adding to already substantial LNG import bills in Europe and Asia.

According to Baltic Exchange data cited in the Wall Street Journal report, spot market LNG tanker rates have increased sixfold since the beginning of the year, reaching $450,000 per day this week.

Brokers expect this to rise further to half a million dollars a day as demand remains strong ahead of winter. And that might not be the ceiling because a UK brokerage has forecast that freight rates could skyrocket to as much as $1 million a day before the end of the year.

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An additional factor making shipping LNG more expensive is that a substantial portion of the available LNG fleet is currently used as floating storage, as traders expect the price of the product to rise further as winter sets in. The Reuters report on LNG tanker jams noted that LNG prices for delivery in November and December are $2 mmBtu higher than current prices.

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The jams are also turning some of the tankers waiting to offload into floating storage, at least temporarily, helped by a drop in demand due to warmer-than-usual weather in Spain and lower industrial demand for gas across Europe due to to the economic slowdown. activity, which in turn was caused by the gas shortage that began last year.

There is also more expensive news on the horizon. The restart of Freeport LNG, which closed after a fire in June, which hurt the affordability and availability aspects of Europe’s new LNG addiction, could be delayed.

Rystad Energy, the Norwegian energy consultancy, forecast recently that Freeport LNG could return to normal operation by the end of next month, but added that there is still a possibility of a delay. This delay, Rystad noted, could push gasoline prices higher in the United States. Higher gas prices in the US would also automatically increase LNG prices for the international market.

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This is happening as the European Union tries to put its foot down and say it will put a ceiling on LNG prices. The Commission made a proposal to that effect this week and it was discussed by European leaders at a meeting on Thursday.

Even before the meeting, an agreement was unlikely to be reached as member states are divided on the issue, but the push to rein in gas prices and consequently inflation is strong and some form of agreement could end up being reached. price controls to reduce the price pain.

There is some hope despite all the bad news on prices. LNG imports from China are expected will decline sharply due to weak demand and high spot market prices, freeing up more cargo for Europe. It is a pity that it cannot build more LNG import terminals in weeks.

By Irina Slav for Oilprice.com

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