LNG bottlenecks are emerging in crisis-ridden Europe | OilPrice.com

European countries boasted that their gas storage facilities had filled up to above normal levels before the onset of winter. However, more LNG cargoes are arriving in Europe at port jam rates. And freight rates are above the ceiling, boosting already record LNG prices. Earlier this week, the media mentioned More than 30 LNG tankers are parked off the coast of Spain, waiting to be unloaded at a gas-to-gas regasification plant. Obviously, these terminals were not enough to increase LNG imports into the country, which includes most LNG import terminals in Europe, with a total of six terminals.

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

Omar Nokta, Head of Shipping Research at Jefferies Tell The Wall Street Journal. “There’s very limited capacity out there and it’s very expensive to get.”

It’s the oldest law on supply and demand in action, but this same law also drives freight rates for LNG carriers to high levels, adding to the already large LNG import bills in Europe and Asia.

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

Brokers expect that amount to rise again to half a million dollars per day as demand remains strong ahead of winter. And that may not be the limit because one UK brokerage has predicted freight rates will rise to as much as $1 million per day before the end of the year.

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An additional factor that makes shipping LNG more expensive is that a large portion of the available LNG fleet is currently used as floating storage as traders wait for the commodity price to rise as winter sets in. A Reuters report on LNG tanker bottlenecks indicated that LNG prices for November and December delivery are 2 million British thermal units higher than current prices.

The bottlenecks are also diverting some tankers waiting to offload into floating storage, at least temporarily, aided by a drop in demand due to warmer-than-normal weather in Spain and lower industrial demand for gas across Europe due to the economic slowdown. Which in turn was caused by the gas shortage that started last year.

There’s more expensive news on the horizon, too. The restart of Freeport LNG, which shut down after a fire in June, may be delayed, hurting affordability and availability of Europe’s new LNG addiction.

Rystad Energy, a Norwegian energy consultancy, Climate forecast Recently, Freeport LNG may return to normal operation by the end of next month, but added that there is still the possibility of a delay. Rystad indicated that this delay could push up gas prices in the United States. Rising gas prices in the US will automatically increase LNG prices in the international market as well.

This is happening at a time when the European Union is trying to put its foot down and says it will cap the prices of LNG. A proposal to that effect was presented this week by the Commission and discussed by European leaders at a meeting on Thursday.

Even before the meeting, an agreement was unlikely as member states are divided on the issue, but the pressure to tame gas prices and, therefore, inflation is strong and you may end up agreeing to some form of price control to reduce the price pain.

There are some positive aspects despite all the bad price news. China’s imports of liquefied natural gas is expected To a sharp decline due to weak demand and higher spot market prices, which will provide more shipments to Europe. Too bad he can’t build more LNG import terminals in a matter of weeks.

By Irina Slough for Oilprice.com

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