The gas-filled ships waiting off the European coast

The huge tankers await. Dozens of giant ships filled with liquefied natural gas (LNG) lie off the coast of Spainfrom Portugal, from United Kingdom and other European nations.

Despite the great demand for this fossil fuel, which is cooled to about -160 degrees Celsius for transportation, there are tankers that have been waiting days to deliver their precious cargo.

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After invading Ukraine last February, Russia reduced gas supplies to Europe, triggering an energy crisis that triggered the price of gas. This sparked fears of power shortages and soaring consumer bills.

“It’s been going on for about 5 or 6 weeks”said Augustin Prate, Vice President of Energy and Commodity Markets at Kayrros, one of the many observers who have followed the development of the situation.

He and his colleagues track ships through Automatic Identification System (AIS) signals, which ships transmit to receivers, including satellites.

“Clearly it’s a great story,” he said.

The motives

Why are LNG laden ships lurking around Europe? The answer, as you may have guessed, is a bit complicated.

Germany is building new facilities to be able to unload, store and process more liquefied natural gas. (GETTY IMAGES)

Fraser Carson, a research analyst at Wood Mackenzie, has also been following the situation and has accounted for 268 LNG ships worldwidenotably above the annual average of 241. Of those currently at sea, 51 are in the vicinity of Europe.

The expert explained that European countries began to buy gas during the summer with the aim of filling storage tanks on land. The objective? Guarantee the availability of fuel to cover energy needs this winter.

The original goal was to have their deposits at 80% of its capacity before November 1. However, this has been achieved, and even exceeded, much sooner than expected. The latest data suggests that storage is now at almost 95%.

But as LNG continues to wash ashore, demand is high for facilities that heat the fuel from a liquid state and convert it back to gas. To this must be added that there are not many plants of this type in Europein part because the continent has long relied on gas supplied by Russia, through pipelines.

That is one of the reasons tankers are waiting: some are queuing to access the regasification terminals.

To the race

Germany and the Netherlands have started building on new regasification facilities. Some, quickly built with converted LNG carriers berthed at docks, are expected to be operational within months.

Another reason for this bottleneck is that in Europe it is is consuming less gas of which is traditionally consumed at this time of year, because temperatures have remained relatively high until well into October.

In addition, as Antoine Halff, co-founder of Kayrros, pointed out, the industrial activities that depend on this fuel have reduced their consumption.

“There has been a very drastic drop in the production of cement and steel in Europe,” he said.

Since the beginning of the Russian invasion of Ukraine, European countries have tried to stockpile as much gas as possible in anticipation that Moscow will cut off supplies in retaliation for its support of Kyiv. (GETTY IMAGES)

making accounts

There is also another ingredient and that is that a situation called “contango” has been presented in the market, which means delaying the delivery of a product because its future price will be higher than the current price.

“The price that will be obtained for delivering it in January will be higher than doing it in November,” he explained.

Michelle Wiese Bockmann, market editor and analyst at shipping magazine Lloyd’s List, said that just by waiting to deliver a shipment in December instead of November, the benefits could be tens of millions of dollars.

Although buyers from other parts of the world may end up buying cargoes from some ships waiting off European coasts, meaning they could leave and head to Asia, for example, Europe stands to benefit from having an excess of LNG. literally floating in its seas.

Some observers stated that the fact that ships are waiting is partly positive, since it implies that gas is available when needed.

The only problem is in the money. Feverish demand for gas means countries are already have paid extraordinary amounts to get it.

Germany spent $48.849 million on imports between January and August, Reuters reported. In the same period of the previous year the figure was US$ 16,875 million.

Experts consider that the fact that there are lines of tankers in European ports can be beneficial, because it means that there is enough fuel. (GETTY IMAGES)

Uncertain future

Both Bockmann and Carlson argue that European countries are in an advantageous position, despite the geopolitical environment.

The real question is what will happen next. With gas guaranteed at least for the next few weeks, the price of the raw material in Europe has started to go down.

But further supply disruptions and very cold winter months could change the landscape.

The world situation must also be taken into account. Rising demand for LNG imports in Europe has fueled competition for the gas around the world. Countries like Pakistan and Bangladesh, which are dependent on LNG but have less financial clout in the market, have been hurt by the situation.

Some of the LNG that traditionally went to Asia has ended up in Europe. It was a “great game of musical chairs”Halff said.

But some Asian countries, notably China, Japan and South Korea, which also use a lot of LNG, are likely to seek large imports in the colder months, which could fuel competition between continents.

Corey Grindal, chief operating officer and head of global trade for LNG producer Cheniere, said what is happening in the market is “a very short-term phenomenon.”

Source: Elcomercio