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Alex Kimani

Alex Kimani

Alex Kimani is a veteran finance writer, investor, engineer and researcher for Safehaven.com. 

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Huge U.S. Winter Storm Threatens To Tighten LNG Market

  • The winter storm sweeping across North America has cut off power supply to millions and disrupted Christmas travel plans for millions more.
  • While the U.S. power grid avoided any catastrophic failures, the Sabine Pass and Corpus Christi LNG terminals could well be disrupted.
  • Europe will need huge volumes of LNG next year as it turns its back on Russian gas, and shortages such as this one will become increasingly problematic.
LNG

The gigantic deadly winter storm sweeping through the United States could disrupt global supply from one of the top liquefied natural gas (LNG) exporters, tightening a market that’s seen wild swings in prices this year.

The Arctic blast in the United States cut off the power supply to millions of households and disrupted Christmas travel plans for millions more as thousands of flights were canceled. Just ahead of the Christmas holiday weekend, almost 250 million U.S. and Canadian residents were affected by the storm in one way or another, and at least 19 deaths were connected to the icy blast and the severe winter conditions.  

Hard-freeze warnings have been issued for all the states along the U.S. Gulf Coast—Texas, Louisiana, Alabama, and Florida.

While the Texas power grid managed to avoid catastrophic failures during the storm, shipping agencies warn there could be a disruption of navigation on waterways servicing the biggest LNG export terminal at Sabine Pass.

Freezing temperatures until Monday, December 26, could delay or suspend pilot services for the Sabine-Neches Waterway servicing Sabine Pass, per notices by Moran Shipping quoted by Bloomberg. Moreover, pilots have suspended the docking of ships at the port of Corpus Christi in Texas due to the extreme winter weather, Moran Shipping says. As a result, vessel traffic to the LNG export facility at Corpus Christi could be impacted.  

The winter storm in the U.S. during Christmas could be the latest extreme event to affect the global LNG market this year.  

Just last week, a fire at the floating LNG export facility Prelude offshore Australia forced the operator, Shell, to shut down production, just three months after Prelude resumed operations following a months-long industrial action at the FLNG.  

Australia is also one of the world’s top LNG exporters, alongside the U.S. and Qatar, but it has been American LNG that has helped Europe reach comfortable gas storage supply levels ahead of this winter.

The United States has shipped record volumes of LNG to Europe to help EU allies and around 70% of all American LNG exports have headed to Europe in recent months.

LNG prices surged to records earlier this year as Europe was racing to stock up on the superchilled fuel ahead of this winter. The EU’s incentive to shake off Russian gas dependence and replace volumes that Russia no longer supplies has made Europe the preferred destination of flexible-contract LNG cargoes, especially those from the United States.

Between January and November, LNG imports into the EU and the UK combined jumped by 65% year over year, according to estimates from the Oxford Institute for Energy Studies (OIES). Imports from the United States alone surged by 176%, while imports from other sources grew by 27%. In that same period, global LNG exports grew by just 5.5%, with nearly half of the growth coming from the United States, OIES said. 

Next year, Europe will need even more LNG supply to offset low (or possibly non-existent) pipeline flows from Russia, analysts and industry players say.

With the plunge in Russian pipeline gas deliveries, Europe will need “huge volumes” of LNG next year, commodity trader Trafigura said earlier this month, adding it expects continued volatility in the natural gas and LNG markets. 

“While Europe should avoid a blackout this winter by drawing on inventories and cutting demand, it will need to import huge volumes of LNG in 2023 given the massive reduction in flows from Russia,” Trafigura said in its annual report for the year to September 30.

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Natural gas prices in Europe will have to remain elevated so that the continent can continue to attract most of the LNG cargoes in competition with the other key demand centers, according to Trafigura. The commodity trader expects Europe to prioritize the security of supply “through next winter and beyond.”   

By Tsvetana Paraskova for Oilprice.com

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