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Irina Slav

Irina Slav

Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.

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Europe Faces LNG Supply Crunch

Europe is facing a potentially tough winter with natural gas supply nowhere near enough to meet heightened seasonal demand, Bloomberg has reported, citing storage data and industry insiders.

LNG deliveries in July were at the lowest for that month in three years, the report noted, and this month things look even worse, with only one cargo set to arrive in the UK. Meanwhile, six cargos of LNG are set to depart from Spain in August as traders seek to profit from higher prices on the Asian market.

Pipeline supplies from Russia are also problematic and not for political reasons. Gazprom recently said that it is overwhelmed by demand both at home and abroad. Then, earlier this month, a fire erupted at a condensate plant in Siberia, reducing natural gas supplies via the Yamal-Europe pipeline.

Global demand for natural gas, including LNG, has been on a tear recently, rising for five months in a row to July, with Latin America and Asia ready to pay top dollar for LNG, thus drawing cargoes away from Europe. Asia accounted for 74.6 percent of demand in July, Argus reported, importing 22.6 million tons. Europe, in comparison, took in just 4.43 million tons, down from 5.5 million tons a year earlier.

“Europe needs to refill storage, but with the current fight for cargoes, it seems like the market will be very tight unless pipeline flows increase,” Oystein Kalleklev, chief executive officer of shipowner Flex LNG, said, as quoted by Bloomberg. “We need to prepare for a very volatile winter depending on winter weather.”

“European gas fundamentals remain tight, with the persistent weakness of Russian supply as the main source of concern,” analysts from Engie EnergyScan said in a note this week, as quoted by Natural Gas Intelligence.

Gazprom has booked only 650,000 cu m daily of the 15-million-cu-m capacity of its pipeline network through Ukraine for September. The state gas major has also said it would raise gas prices for Europe by about 30 percent for the full year.

LNG prices in Europe are also on the rise, however, and this may bring in more LNG cargoes in the coming weeks as the premium that has drawn traders to Asia has virtually disappeared, with both the European and the Japanese LNG benchmark above $15 per million British thermal units for September.

By Irina Slav for Oilprice.com

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