By Irina Slav
- Europe’s attempt to reduce its reliance on Russian commodities has fueled a boom in LNG imports from the United States and other producers.
- Since last year, LNG spot prices have risen by an astonishing 267 percent.
- LNG capacity expansions are on the agenda of many producers, but they take time, which means prices could rise in the meantime.
The spot prices of liquefied natural gas have gone through the roof this year as Europe suddenly became a major buyer in its attempts to reduce reliance on Russian commodities.
Since last year, LNG spot prices were up 267 percent, averaging $57 per million British thermal units in the week to August 19, per Reuters data. However, this price does not reflect the supply situation of LNG.
Reuters Clyde Russell noted in a recent column that LNG exports to Asia—the biggest market for the superchilled fuel—are seen at 20.59 million tons for this month and 21.34 million tons per month for the first eight months of the year.
This is actually down from the average monthly volumes going into Asia over the first eight months of last year, Russell points out, citing Refinitiv data, which shows that average at 23.03 million tons.
In other words, a little less LNG is going into Asia this year than it went last year, at an average annual price of less than $15 per million British thermal units. But a lot more LNG is going in Europe this year, pushing up global spot LNG prices.
For the first eight months of this year, LNG imports into Europe have been almost 63 percent higher than the volumes for the same period of last year, the Refinitiv data also showed. That makes for an average monthly import rate of 10.62 million tons, which was up from 6.53 million tons same time last year.
A difference of around 4 million tons of LNG in monthly demand, then, has driven prices sky-high and triggered worries about the security of supply. Outages have not helped either, to be fair.
The Freeport LNG closure had a severe impact on LNG prices since the facility accounts for a fifth of U.S. liquefaction and export capacity. Shell had to suspend production on its Prelude floating LNG facility in Australia because of a workers’ strike, and Nigeria’s Bonny Island LNG terminal has been operating at lower than normal utilization rates because of insufficient gas supply, itself a result of thefts and pipeline sabotage.
Even with the Freeport closure, there still would have been enough for everyone if it hadn’t been for Europe’s newfound LNG appetite. There would have been enough even for poorer developing countries that have had to give up LNG cargos that they can no longer afford, plunging themselves into blackouts.
Indeed, even EU member Bulgaria had to cancel two of three U.S. LNG cargos the previous government had asked for because the price was too high to make economic sense.
At the same time, long-term contracts for LNG appear to not be a real alternative to the spot market, at least for countries such as Germany. Earlier this year, Germany’s economy minister visited Qatar to negotiate a supply deal but went home empty-handed because of the conditions the Qatari side proposed, including the term of the deal.
Even so, LNG remains Europe’s only reasonable alternative to Russian pipeline gas, it would appear. It takes a shorter time to install floating LNG terminals than to build a pipeline, for example, and this is exactly what Germany is doing now, hoping to have two of these terminals ready for this winter.
France appears to be in favor of adding LNG import terminals rather than gas pipelines to solve its energy shortage problem. Again, the reason is that terminals for LNG imports take a shorter time to complete. And this means that Europe’s LNG thirst could only grow in the coming years.
This, in turn, might tighten the supply situation, and it probably will: LNG capacity expansions are on the agenda of many producers, but they take time, just like the construction of new capacity, such as the one mulled over by Canada during this week’s visit of Germany’s Chancellor in Ottawa. And this means prices have even higher to go.