Over 3.4 Million Metric Tons of Natural Gas Remain Idled in Europe

The tanker "Maria Energy" loaded with liquefied natural gas is moored at the floating terminal, the special ship "Hoegh Esperanza," in Wilhelmshaven, Germany, on Jan. 3, 2023. (Sina Schuldt/dpa via AP)

A record amount of LNG is currently being idled at sea near Europe as demand in the region has apparently cooled down while supplies remain ample.

More than 3.4 million metric tons of LNG have stayed aboard ships on the water for more than 20 days as of earlier this week, according to data compiled by Bloomberg. This is the highest level for this time of the year per data going back to 2017. It is also close to the all-time hit in late May 2020 when the pandemic frenzy triggered a collapse in energy demand.

Lu Ming Pang, an analyst at Rystad Energy AS, points out that the average speed of LNG vessel fleets worldwide has fallen by around a knot in April compared to the same month in previous years.

“This may indicate that there is sufficient supply in the market, with deliveries slowing down to match decreased levels of activity in this period,” he said.

With 3.4 million metric tons of LNG at sea, similar levels of on-water storage is something that mostly tends to occur during the run-up to winter. The presence of such large quantities idled at sea is also an indication that the European market presently has more gas supply than demand.

At the Intercontinental Exchange (ICE), June Dutch TTF natural gas futures, which is the benchmark for Europe’s gas trading, fell to 35.95 euros per megawatt hour on May 9.

The recent winter season was milder than expected across Europe, which has seen the region’s gas inventories at the end of the 2022/2023 heating season end up well above the 5-year average. As of May 9, storage sites across the EU were 62.04 percent full, according to data from Gas Infrastructure Europe.

Gas Situation in Europe

According to a May 8 post by S&P Global Commodity Insights (SPGCI), gas supply to Europe moved higher in April compared to March. LNG arrivals were above-average together with higher supply from the Algerian pipeline and the Russian pipeline delivery via Turkstream.

“As a result, injections to European gas storage exceeded our start-of-the-month expectations. In turn, storage fullness rose from 55.7 percent end-March to 59.6 percent end-April, remaining substantially above the 5-year average of 39 percent,” SPGCI said.

Higher summer inventories and the strong availability of LNG cargoes are projected to keep a bearish pressure on gas prices in Europe. Upside pressure is expected from demand to refill gas storage and from the power sector switching to gas from coal.

“The bearish pressure could become more difficult to mitigate in late summer as storage space becomes less available in Europe.”

Meanwhile, traders are watching the cooling demand for gas in the region. With Europe’s weather expected to become warmer in the coming months, they may be in a position to sell the LNG shipments at sea at higher prices.

2023 Demand and Supply

In its Q2 2023 Gas Market Report (pdf), the International Energy Agency (IEA) predicts the global gas supply to remain tight this year amidst lower Russian pipeline gas deliveries to Europe.

“Global LNG supply is forecast to increase by a mere 4 percent (or over 20 billion cubic meters) in 2023. This would not be sufficient to offset the expected reduction in Russia’s piped gas supplies to Europe,” the report said. “The level of Russian pipeline gas supplies is a major uncertainty for the remainder of 2023.”

“If flows to the European Union continue at the levels seen in the first quarter, Russian piped gas deliveries to advanced economies in Europe would drop by 45 percent (or over 35 billion cubic meters) in 2023 compared with 2022.”

The IEA warns that the global gas balance is subject to an “unusually wide range of uncertainties” that include adverse weather, lower LNG availability, and reduced Russian pipeline deliveries to Europe. Such factors can “easily renew market tensions and price volatility.”