According to MarineTraffic, 60 LNG tankers, or 10% of all LNG tankers globally, are currently cruising or docked off the coasts of Northwest Europe, the Mediterranean, and the Iberian Peninsula.
According to estimates from Vortexa, the ships are transporting $2 billion worth of natural gas in total.
Winter energy demands in Europe are reliant on natural gas, and while Russia’s supply has dwindled due to the conflict in Ukraine, there is still 93% of available storage space.
Due to their inability to dispense, the boats are seen as floating LNG storage, and the scenario is having a bearing on both freight rates and natural gas prices.
All this is happening as a result of Russia’s involvement in the Ukraine war and reductions in natural gas supplies ahead of the winter. Now, the U.S. is selling more LNG to Europe, but the European infrastructure is unable to handle the extra LNG exports, leading to a backlog of LNG ships waiting to unload at ports.
According to Andrew Lipow, head of Lipow Oil Associates, “the influx of LNG tankers has outstripped the capacity of the European gas processing facilities to offload the cargoes in a timely manner.”
60 of the 641 LNG shipments currently in operation all across the globe are waiting to discharge their fuel in Europe. According to MarineTraffic, these LNG tankers have been idling or making slow progress throughout northwest Europe, the Mediterranean, and the Iberian Peninsula. The Suez Canal has one anchored there. Currently, eight LNG tankers from the United States are sailing to the Spanish port of Huelva.
Reports and Data
According to data released by Enagas, Spain’s national gas grid operator, gas reservoirs in Spain are 80% saturated, which is close to the operational limit.
The LNG that is hanging offshore cannot be used due to a lack of re-gasification plants or pipelines that connect nations with those facilities to other European markets. According to Alex Froley, LNG analyst at data intelligence company ICIS, “We have witnessed a high volume of cargoes loitering offshore in southern Spain or circling in the Med, along with some cargoes hanging around the UK”.
According to Lipow, these bottlenecks make it harder for the tankers to return to the US Gulf Coast to pick up the subsequent load, which causes natural gas inventories to surge more than the market anticipated.
According to Jacques Rousseau, managing director of worldwide oil and gas at ClearView Energy Partners LLC, “European gas storage continues to expand and currently approaches 93%.”
The 10% reduction in available vessel capacity emerges at a time when the plurality of LNG boats is bound by long-term contracts, leaving the spot market devoid of vessels. As a result, prices are rising to $500,000 a day.
Contango Dilemma
Back in August, the cost of a megawatt hour of gas in Europe had risen beyond 340 euros ($332.6), but last week it fell below $100 for the first time since Russia cut supplies. The outlay had been as low as 30 euros, prior to the war.
According to the media reports, 30 more vessels are intended to engage with those offshore before the winter months.
MidCat is expected to lower Europe’s dependency on Russian gas, according to its main sponsors in Lisbon, Madrid, and Berlin by installing a tertiary gas pipeline across Spain and France.
Similar circumstances involving the oil sector took place at the zenith of the coronavirus pandemic when merchants kept extra crude on ships as floating storage while they waited for prices to shoot up.
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