Tankers “Race” to Secure More Energy Supplies for the EU

The European region is looking to import as much LNG as it can, with tankers facing an uphill “battle” against time and other clients from other regions, to cater to this demand. In its latest weekly report, shipbroker Intermodal said that “as we are heading towards the winter season in the northern hemisphere with uninterrupted natural gas price highs sighted in the past months and present volatility, markets brace themselves for an upcoming period of supply uncertainty as energy security has become a precedence issue in Europe and other importing regions in view of a possible total cut-off in Russian flows, creating further tensions and demand destruction for all competing importers. Reducing Russia’s dependence on gas and securing alternative energy sources will not be a simple equation to solve and will require coordinated efforts across numerous sectors. Accordingly, as there is a considerable market tension for alternative sources of gas supply the EU has a major opportunity to improve its energy security and its competitiveness thanks to the affirmative development of the global LNG market. European Union is more dependent than ever on imports of liquefied natural gas”.

According to Intermodal’s analyst, Ms. Katerina Restis, Tanker Chartering, “Russian gas supplies have decreased to most of the European countries further to imposed Western sanctions for its invasion to Ukraine. In turn, many countries bought LNG as a substitute, but the unexpected and unseasonably Europe’s warm temperatures have led to a reduction in heating demand, which in turn kept storage sites full and prices descending. Lately, as reported more than 30 LNG carriers are queued up just off Europe’s LNG receiving terminals as traders are holding out for higher market prices in anticipation that colder weather will increase demand for energy and in turn drive up prices. Furthermore, it is stated that the ships are carrying a combined worth of $2bn of LNG and are steaming slowly around northwestern Europe and the Iberian Peninsula while more vessels are sailing across the Atlantic and are anticipated to join these tankers. LNG tankers in European waters have doubled in the past two months, as European countries fill up their storage tanks to near-capacity before the winter”.

She added that “furthermore, as reported by the end of October already European storage sites were almost at full storage capacity nearly at 94% full, with Belgium reaching 100%, France 99%, and Germany 98% of their storage capability respectively. Cargo hold-ups have led to a shortage of available vessels, resulting in higher freight rates while such rates have been challenging for Asian buyers who have been competing with Europe for LNG cargoes throughout the year. As reported, by October 31st Freight rates for the US Gulf Coast to Northeast Asia route were estimated at $478k per day and to Northwest Europe at $468k per day being both at record highs / doubled since last year”.

Ms. Restis also noted that “moreover, Qatar is one of the major LNG exporters in the globe, shipping most of its fuel to Asia, with Europe being a distant second. They have recently declared plans for a 60% capacity expansion by the end of the decade. Accordingly, it is crucial for Europe to have the opportunity to replace extended lost gas imports from Russia, by securing some of those additional Middle Eastern supplies. Since Russia began compressing its gas exports, Europe has balanced most of the gap with US supplies while those shipments won’t be able to keep up as deficiency expands. As reported by the IEA, the EU’s LNG imports need to double to over 150 billion cubic meters a year by 2025 to replace Russian pipeline gas, so Europe will need every source of gas it can get”.

“To sum up, as reported by the IEA, EU could face a gap of as much as 30 billion cm of natural gas during the next summer period for restocking its gas storage sites in 2023. As stated, EU’s cushion lately created with almost full storage sites and recent lower gas prices coupled with the unusually mild temperatures, should not lead to overly optimistic conclusions about the future. China’s declined LNG imports in the past months have been a key booster of higher LNG accessibility for EU to compensate for the drop in gas deliveries from Russia. If China’s LNG imports recover next year to their 2021 levels, this would capture over 85% of the expected increase in global LNG supply”, Intermodal’s analyst concluded.
Nikos Roussanoglou, Hellenic Shipping News Worldwide