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LNG bottlenecks appear in crisis-stricken Europe




European countries have boasted that their gas reserves have been filled to higher levels than usual before the start of winter. Even more LNG cargoes are arriving in Europe at such speeds that they are blocking ports. And freight rates are through the roof, adding to already record high LNG prices. Earlier this week, the media reported that there were more than 30 LNG tankers idling off the coast of Spain waiting to unload at one of the regasification terminals. It is clear that these terminals were not sufficient for the increase of LNG imports to the country, which has the most LNG import terminals in Europe, with a total of six.

Nevertheless, Spain is not the only one in an “exceptional operational situation”[ads1];, 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 while the LNG rush to Europe continues, a major shortage of LNG tanks threatens.

“All natural gas buyers who are serious have included LNG ships in their portfolio,” Jefferies shipping research head Omar Nokta told The Wall Street Journal. “There’s very limited capacity out there and it’s very expensive to get hold of.”

It’s the oldest of the supply and demand laws at work, but the same law also pushes freight rates for LNG ships 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, the spot LNG tanker market has risen sixfold since the start of the year, reaching $450,000 a day this week.

Brokers expect this to rise further to half a million dollars daily as demand remains strong ahead of winter. And it may not be the ceiling because a British brokerage has predicted that shipping rates could rise to as much as $1 million a day before the end of the year.

Related: Biden is driving US energy security into the ground

An additional factor making the shipment 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 as winter sets in. The Reuters report on LNG tankers noted that LNG prices for delivery in November and December are $2 mmBtu higher than today’s prices.

The paper jams are also turning some of the tankers waiting to unload 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 the slowdown in the economy . activity, which was again caused by the gas shortage that began last year.

There is more expensive news on the horizon too. The restart of Freeport LNG, which was shut down after a fire in June, damaging the affordability and availability aspects of Europe’s newfound LNG dependence, could 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 American gas prices will automatically increase LNG prices for the international market as well.

This is happening while the EU is trying to put its foot down and say it will install a cap on LNG prices. A proposal to this effect was made this week by the Commission and was discussed by European leaders at a meeting that took place on Thursday.

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

There is some silver lining despite all the bad price news. China’s LNG imports are expected to decline 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 weeks.

By Irina Slav for Oilprice.com

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