Dozens of ships loaded with liquefied natural gas (LNG) are reportedly circling off Spanish coasts. Other European nations cannot secure the slots needed to unload as plants that transform seaborne fuel into gas are full.
Europe is encountering an energy supply crisis as Russia has cut down gas flows after the Western nations introduced sanctions in response to the attack on Ukraine.
The region has had to come up with alternative supplies, including LNG. However, the arrival of heaps of cargoes of super-chilled fuel has reportedly exposed Europe’s lack of “regasification” capacity.
There are over 35 LNG-loaded vessels that are drifting around the Mediterranean, off Spain, with eight ships anchored off the Bay of Cadiz; analysts, traders, and sources associated with the LNG terminals are accustomed to the situation mentioned on Monday.
The cargo backlog has reportedly raised alarming concerns regarding Europe’s capability to process LNG supplies required to compensate for the lack of Russia’s pipeline supply.
Spain is offering six slots for cargoes at regasification terminals this week; an industry source mentioned that less than a fifth of the number of vessels queuing off the coasts. The country has six airports in total.
There are also LNG vessels at anchor close to other European nations that could indicate that dozens more are waiting, a source who is aware of the situation reported. The shortages of regasification plants or pipelines linking countries with those facilities to other European markets indicate that the LNG floating offshore cannot be utilized.
We’ve encountered many cargoes waiting offshore in southern Spain or circling in the Med, and some cargoes waiting off the UK, reported Alex Froley, an expert LNG analyst at data intelligence major ICIS.
The bottlenecks were compounded by lower industrial demands as the European economy slowed down and lower-than-expected domestic consumption in Spain owing to warm weather.
ICIS’s Froley mentioned yet another reason that led to the congestion is that: prices were expected to go up. As Heating demands could rise, so some vessels are waiting to sell cargo at a higher rate that may offset different shipping rates incurred by sitting offshore.
The strategy works partly as some firms permit flexibility in shipping portfolios owing to outages such as the closure of the US Freeport plant, Froley mentioned. He was reportedly referring to the second-largest US LNG exporter that stopped operations in 2022 (June) following a fire and an explosion.
He mentioned that if more cargo were being produced, firms might not have been able to leave the ships waiting so long. If the backlog isn’t cleared soon enough, the vessels might even consider alternative ports outside Europe for offloading their cargo.
On Monday, China stopped LNG sales to foreign buyers to facilitate its supply, which market players say may push an increasing number of vessels to move to Asia. With six plants, Spain has the maximum regasification capacity in the EU, which accounts for 44% of LNG storage and 33% of LNG capacity.
Spain’s gas tanks are 80% on average, close to the technical limit, per the data published by Enagas, Spain’s national gas grid operator.
The data is positive in terms of guaranteeing the energy supply for the winter, said a spokesperson associated with Enagas when asked about the tanks.
The lack of adequate pipeline infrastructure indicates that the gas cannot be transported to other European countries. This week, the leaders of France, Germany, Spain, and Portugal are scheduled to meet to try to reach an agreement on the MidCat pipeline that could transport Spanish gas — and, in the future, hydrogen — to central Europe.
MidCat is expected to create a third gas connection between Spain and France, which its principal backers, Lisbon, Madrid, and Berlin, say would help Europe lower Russia’s gas reliance.
References: Reuters, Money Market Advisor
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