European countries have boasted that their gas stocks have been filled to higher levels than usual before the start of winter. Even more LNG cargoes are arriving in Europe at such a rate that they are blocking ports. And freight rates are through the roof, adding to already record LNG prices. Earlier this week, media reported that there were more than 30 LNG tankers idling off the coast of Spain waiting to unload at one of its regasification terminals. It is clear that these terminals were not enough for the increase in LNG imports to the country, which has the most LNG import terminals in Europe, six in total.
Nevertheless, Spain is not the only one in an “exceptional operational situation”, as the government in Madrid called it. There are dozens of LNG tankers waiting to unload or acting as floating storage near other European ports. And as the LNG rush to Europe continues, the shortage of LNG tankers looms large.
“Every natural gas buyer that is serious has included LNG carriers in their portfolio,” Jefferies head of maritime research Omar Nokta told The Wall Street Journal. “There’s very limited capacity out there and it’s super expensive to get.”
It’s the oldest of the supply and demand laws at work, but the same law is also pushing freight rates for LNG carriers sky high, adding to already significant LNG import bills in Europe and Asia.
According to Baltic Exchange data cited in the Wall Street Journal report, prices for LNG tankers on the spot market have increased sixfold since the start of the year, reaching $450,000 per day this week.
Brokers expect this to rise further to half a million dollars daily as demand remains strong ahead of winter. And that may not be the ceiling as a UK broker has forecast freight rates could soar to as much as $1 million a day before the end of the year.
Related: Biden is running America’s energy security into the ground
An additional factor making the transportation of LNG more expensive is that a significant portion of the available LNG fleet is currently being used as floating storage as traders wait for the price of the commodity to rise even higher as winter sets in. The Reuters report on the LNG tanker shutdown noted that LNG prices for delivery in November and December are $2 mmBtu higher than current prices.
The problems are also turning some of the tankers waiting to unload into liquid 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 the drop in the economic activity, which in turn was caused by the gas shortage that began last year.
There’s more expensive news on the horizon, too. The restart of Freeport LNG, which was shut down after a fire in June, which damaged the price and availability aspects of Europe’s newfound LNG dependence, may be delayed.
Rystad Energy, the Norwegian energy consulting company, forecast recently that Freeport LNG could return to normal operations by the end of next month, but added that there is still the possibility of a delay. This delay, Rystad noted, could push gas prices higher in the United States. Higher US gas prices would automatically increase LNG prices for the international market as well.
This comes as the EU tries to put its foot down and say it will install a cap on LNG prices. A proposal to this effect was put forward this week by the Commission and discussed by European leaders at a meeting that took place on Thursday.
Even before the meeting, an agreement was unlikely because member states are divided on the issue, but the drive to tame gas prices and therefore inflation is strong and some form of price control could be agreed to reduce the price pain.
There are some silver linings despite all the bad price news. China’s LNG imports are expected to decrease sharply due to weak demand and high spot market prices, which will free up more cargo for Europe. It’s just a shame it can’t build more LNG import terminals in a few weeks.
By Irina Slav for Oilprice.com
More top reads from Oilprice.com:
