European countries boasted that their gas storage facilities were filled to higher levels than usual before the onset of winter. Yet more and more LNG shipments are arriving in Europe at such rates that they are clogging ports. And freight rates are exploding, adding to the already record LNG prices. Earlier this week, the media reported that there were more than 30 idling LNG carriers off the coast of Spain, waiting to be unloaded at one of its regasification terminals. Obviously, these terminals were not sufficient 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 to find itself in an “exceptional operational situation”, as the government in Madrid has called it. There are dozens of LNG carriers awaiting unloading or serving as floating storage near other European ports as well. And as the rush for LNG to Europe continues, a shortage of LNG carriers is looming.
“Every serious buyer of natural gas has LNG carriers in their portfolio,” said Omar Nokta, marine research manager at Jefferies. Told the Wall Street Journal. “The capacity is very limited and it’s very expensive to get.”
It’s the oldest of the labor supply and demand laws, but that same law also drives up 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 carrier rates have increased six-fold since the start of the year, reaching $450,000 a day this week.
Brokers expect that number to rise further to half a million dollars a day as demand remains strong ahead of winter. And that may not be the cap, as a UK brokerage firm has predicted freight rates could hit $1 million a day before the end of the year.
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An additional factor that makes shipping LNG more expensive is that a significant portion of the available LNG fleet is currently used as floating storage as traders wait for the price of the commodity to rise further at the onset of winter. The Reuters report on LNG carrier bottlenecks noted that LNG prices for delivery in November and December are 2 million Btu higher than current prices.
The traffic jams are also turning some of the tankers awaiting unloading into floating storage, at least temporarily, helped by lower demand due to warmer than usual weather in Spain and lower industrial demand. of gas across Europe due to the slowing economy. 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 harmed the accessibility and availability of Europe’s new LNG dependency, could be delayed.
Rystad Energy, the Norwegian energy consultancy, provide recently that Freeport LNG could resume normal operations by the end of next month, but added that there was always the possibility of a delay. That delay, Rystad noted, could drive up U.S. gasoline prices. Higher US gas prices would automatically increase LNG prices for the international market as well.
This comes as the European Union tries to put its foot down and say it is going to put a cap on LNG prices. A proposal along these lines was made this week by the Commission and was discussed by EU leaders at a meeting on Thursday.
Even before the meeting an agreement was unlikely as Member States are divided on the issue, but the drive to get gas prices under control and hence inflation is high and some form of price control could end up be agreed to reduce price pain.
There is a silver lining despite all the bad price news. Chinese LNG imports are expected decline sharply due to weak demand and high spot market prices, which will free up more cargo for Europe. It’s a shame he can’t build more LNG import terminals in a matter of weeks.
By Irina Slav for Oilprice.com
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