Europe’s Natural Gas Glut Is Growing
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Europe’s role as a destination of last resort for liquefied natural gas that traders can’t sell elsewhere may now be reaching its limits.
With storage sites full and winter looking mild, concerns are mounting on how much more LNG the region’s terminals and pipeline networks can handle. Tepid demand in Asia and more supplies from the U.S. and Russia mean Europe’s ability to absorb gas is under more strain than ever.
“This winter and next year are going to be complicated,” Arturo Gallego, head of LNG trading and operations at Centrica Plc, said at the Bloomberg Commodity Investor Forum in London. “Europe has played an amazing role in this market, but maybe we are running out of tools now.”
Unless demand awakens, suppliers may be forced to reduce output. In an extreme scenario, a plunge in prices could even force a reduction, or shut-in, of U.S. export capacity.
The pressure on Europe’s gas system may get even more intense. LNG imports are set to soar this quarter, helping boost full-year incoming shipments by 65% to 81 million tons, according to Massimo Di-Odoardo at Wood Mackenzie Ltd. Another 10 million tons will be added next year, he said.
“If you want to bring a cargo into northwest Europe, I think you are going to struggle to find capacity,” Peter Abdo, managing director and head of global origination and LNG at Uniper SE’s trading unit, said at BCIF.
Some LNG is already being sold at a discount to regional hub rates in recent tenders, while traders are keeping cargoes for longer than usual. The LNG tanker Gemmata has spent more than 10 days outside Bilbao awaiting a berth. The Hoegh Giant lingered off Spanish coasts for more than a month before unloading last week in Barcelona.
“You will see some of the trading houses going round and round in circles trying to find the optimal market for their cargoes,” said Debbie Turner, senior broker for LNG at Howe Robinson Partners.
There are other ways Europe has coped with the glut of LNG, including a switch to gas-fired power generation from coal. Also playing a role are reduced natural gas production in places such as the Netherlands and lower imports from producers such as Algeria.
“We need to find new tools just to balance the market,” Centrica’s Gallego said. “We are seeing some additional demand coming from Asia, we are seeing some additional demand coming from some places, but not as much as we thought. The problem is we are trusting Europe to manage all that.”
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