11-01-2017

Europe Left in Cold as Frost Triggers Global LNG Hunt

Globallng

The year has started off with a very cold snap, meaning Europe will have to pay a premium to stay warm.

European countries from France to Greece are losing out in a search for liquefied natural gas cargoes amid a freezing spell, as ships sail to buyers in Asia willing to pay a higher price to meet peak winter demand. The lack of LNG has prompted France’s grid to call for more of the fuel to be supplied by southern terminals and issue the highest warning level on supplies for a second day. Shortages were experienced in Turkey, and Spain also boosted gas usage.

It’s a sign of the times. The expansion of the liquefied natural gas trade has allowed the fuel to break out of conventional regional markets and become a global commodity. While the growth has evened out access to gas worldwide, it’s hurt some buyers by ratcheting up competition among consumers during periods of increased demand.

“It’s amazing what a bit of cold weather does,” said Trevor Sikorski, an analyst at Energy Aspects Ltd., by e-mail. “All markets are wanting gas at the moment.”

Buyers in northeast Asia, the biggest consumer, are paying a two-year high of about $9.90 per million British thermal units for spot LNG cargoes shipped from Qatar or the U.S., meaning European countries, where prices have typically been lower, need to pay more. Hub prices in France’s southern hub almost doubled over the past month to about $11.40 a million Btu on Jan. 9 on the Pegas exchange in Paris, the highest on record.

The jump is a result of cold weather across the northern hemisphere, which increases consumption of the heating fuel. Temperatures in southeast Europe could fall to minus 9 Celsius (16 Fahrenheit) on Tuesday, compared with a 10-year average of 1.5 Celsius, while central European temperatures may fall to minus 7.4 Celsius, according to data from the Weather Co.

Europe has increased imports by pipelines from suppliers including Russia, with Moscow-based Gazprom PJSC exporting record volumes to the region. As volumes shipped on those links gets nearer to capacity, buyers are getting in line for the limited number of LNG cargoes available.

French network operator GRTgaz SA issued the highest level of warning on gas supplies in the southeast of the nation Monday, urging more LNG to be supplied from its Mediterranean ports. Turkey has been forced to ask local power producers to cut gas use by 90 percent.

That comes as China’s LNG imports surged to a record in November to avert shortages during the winter, while higher Asian appetite and prices encouraged U.S. shale cargoes into the region.

Greece, which receives its gas by pipeline and tankers, has a stretched network due to colder weather and would welcome additional supply, a trader said, asking not to be identified by name because they are not authorized to speak to the media. Desfa SA, the country’s gas network operator, wasn’t able to immediately comment.

Four tankers are scheduled to arrive at Greece’s only terminal this month compared with zero in a Dec. 17 update for the month and two in January 2016, according to data from Desfa. Spain, the biggest re-exporter of the fuel, is hanging onto its LNG cargoes, with no reloads since July, according to Enagas SA, the network operator.

Spanish gas demand rose 32 percent from a year earlier in the year to Jan. 8, driven by colder weather and lower wind and hydro generation, according to Enagas. Normal temperatures are expected to return in the next few days after they dropped 5 degrees Celsius below usual levels, the operator said by e-mail.

Northwest Europe has also felt the pinch of LNG competition. The U.K. has no scheduled imports after getting one cargo earlier this month, with a second, smaller vessel reloading, compared with six and a half cargoes imported in January 2016.

Source: Bloomberg

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