The gas supply channel has become shallow

The EU sharply increased LNG purchases in November: according to S&P estimates, LNG imports increased by 76% compared to last month, to 7.39 million tons. Europe continues to attract more LNG cargo than Asia. This is due to restrictions due to the shallowing of the Panama Canal, which is holding back supplies from the United States to Asia. The EU therefore enters this winter with high storage stocks and stable LNG supplies.

LNG imports into Europe in November increased by 76% compared to last month, to approximately 7.39 million tons, as of November 20, according to S&P data. This is the highest monthly import volume since May. In the supply structure, the US share is just over 52% of the total volume, the Russian Federation – about 13%, Algeria – about 11%, writes S&P Global Commodity Insights. The largest volumes of LNG in November went to France (1.66 million tons), Spain (1.04 million tons), Great Britain (970 thousand tons) and the Netherlands (890 thousand tons).

This sharp increase in LNG purchases may be associated with colder weather in Europe, which increases expectations of increased gas demand on the continent in late November and December.

Gas prices in the EU are still balanced: December futures are trading in a narrow range of €45–50 per 1 MWh, or up to $550 per 1 thousand cubic meters. Despite the fact that the withdrawal season from underground gas storage facilities has already begun, reserves are at an extremely high level (98.94% as of November 18), and LNG terminals in Europe are overloaded, pipeline supplies from Norway are also stable. Even the risk premium created since the start of the war between Israel and Hamas is gradually declining, despite the hijacking of a commercial vessel in the Red Sea last weekend. But by the end of the month, temperatures in northwest Europe are expected to fall, which could further increase demand for gas for heating.

Last winter, EU countries managed to replace the reduction in pipeline supplies from the Russian Federation by increasing LNG exports and reducing gas consumption, however, it cannot yet be said that the continent has completely overcome the severe energy crisis. At the same time, the European Commission believes that there remains a risk of a complete cessation of pipeline supplies from the Russian Federation.

Due to drought this year, LNG cargoes from the Gulf of Mexico are facing delays passing through the Panama Canal on their way to Asia. This is causing more US LNG to be diverted to Europe, even though prices are now higher in Asia. In November, LNG exports to Europe accounted for up to 40% of total supplies from the United States, while to Asia – only 4%, writes S&P.

However, Bloomberg estimates that the Asia-Europe price spread will double by next year as longer routes due to new Panama Canal restrictions will raise the cost of sending U.S. LNG to Asia through the Cape of Good Hope or the Suez Canal. Already in January, the number of slots for LNG gas carriers in the canal could be halved, according to Bloomberg.

Sergei Kondratyev of the Institute of Energy and Finance estimates that although LNG shipments to Europe in November increased by more than 70% month-on-month, they are likely to remain lower or be at the level of November 2022, when 11 were supplied to the EU. 8 million tons. Due to low water levels in the Panama Canal, shippers are forced to pay up to $4 million to skip the line or wait for many days. “Despite weak demand in Asia—imports to Japan are stagnant and imports to India are declining—the Asian premium remains, but for US producers it does not compensate for increased transportation costs,” he concludes.

Tatiana Dyatel