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LNG Bottlenecks Emerge in Crisis-Affected Europe

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European countries boasted that their gas storage facilities were filled to higher-than-normal levels before the start of winter. Yet there is so much LNG cargo arriving in Europe that it confuses ports. And freight rates are going through the roof, adding to the already record-breaking LNG prices. media earlier this week. reported He said there are more than 30 LNG tankers awaiting unloading at one of the regasification terminals off the coast of Spain. Obviously, these terminals were not enough to increase LNG imports to the country that hosts the largest number of LNG import terminals in Europe, with a total of six.

Still, Spain is not the only country in an “extraordinary operational state,” as the Madrid government says. Near other European ports there are also dozens of LNG tankers awaiting unloading or serving as floating storage. And as the flow of LNG to Europe continues, so does the shortage of an LNG tanker.

“Every serious natural gas buyer has taken LNG carriers into their portfolio,” said Omar Nokta, head of research at Jefferies Shipping. said Wall Street Journal. “There’s very limited capacity out there and it’s very expensive to get.”

It is the oldest of the laws regarding supply and demand at work, but the same law also raises freight rates for LNG carriers too high, adding to the already significant LNG import bills in Europe and Asia.

Spot market LNG tanker rates have increased sixfold since the start of the year, reaching $450,000 a day this week, according to Baltic Exchange data cited in the Wall Street Journal report.

Brokers expect this to rise to half a million dollars a day as demand remains strong ahead of winter. And that may not be the ceiling, as one UK brokerage estimates that freight rates could hit as much as $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 existing LNG fleet is currently used as floating storage as traders expect commodity prices to rise further as winter begins. Reuters’ report on LNG tanker jams noted that LNG prices for delivery in November and December were 2 mmBtu higher than current prices.

The congestions are also turning some tankers into floating storage waiting to be unloaded, at least temporarily, aided by the drop in demand due to warmer-than-normal weather in Spain and the slumping industrial gas demand in Europe due to the economic slowdown. This was due to the gas shortage that started last year.

There is more expensive news on the horizon. The reboot of Freeport LNG, which closed after a fire in June and hurt the affordability and availability aspects of Europe’s newly discovered LNG dependency, could be delayed.

Norwegian energy consultancy Rystad Energy, guess He recently added that Freeport LNG may return to normal operations by the end of next month, but there is still a possibility of delay. Rystad noted that this delay could further increase gas prices in the US. Higher US gas prices will automatically increase LNG prices for the international market as well.

This is happening as the European Union tries to put its foot down and say it will skyrocket LNG prices. A proposal to that effect was presented by the Commission this week and was discussed by European leaders at a meeting on Thursday.

Even before the meeting, an agreement was unlikely as member states were divided on the issue, but pressure to tame gas prices and ultimately inflation is strong and some form of price control could be agreed to reduce price crunch.

Despite all the bad price news, there’s some silver lining. China’s LNG imports increase expected There will be a sharp drop due to weak demand and higher spot market prices, which will free up more cargo to Europe. Too bad it can’t build more LNG import terminals in weeks.

By Irina Slav for Oilprice.com

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