Natural gas is flooding the world, driving prices down and creating a surplus of fuel in Europe and Asia – at least for the coming weeks.
Since the Ukraine war, which shook the energy markets and caused Europe to rush to secure alternative sources of supply as much as possible, the trend has become rare.
Inventory levels are increasing from South Korea to Spain as a result mild winters and attempts to reduce consumption. The liquefied gas tanks, which were a temporary solution to replace lost Russian pipelines, are now struggling to find a place. They can spend weeks at sea.Gas storage levels reached their current level 11 weeks earlier than 2021
The demand for gas usually drops as heating season ends and then increases when the weather gets hotter later in summer. Morgan Stanley reported that the fuel is then stored in order to prepare for next season. This year, however, Morgan Stanley believes that Europe could be finished with its filling as soon as late August.
Talon Custer said that there appears to be a temporary gas glut, which should continue to exert pressure on the LNG price in the coming weeks. This could push benchmarks a little lower.
Gas prices have dropped from their highs of last year, but they are still above average for the past ten years. This could indicate that the current gas glut is about to disappear. Custer believes that prices are “close to a ceiling” because lower gas costs may spur more demand.
Extreme heat or droughts can boost consumption. Custer says that importers will begin to prepare for winter by the end of the third quarter. This will increase competition for LNG cargoes.
The glut has spread.
RBC Capital Markets reported that gas storage in Spain, which has the most LNG terminals of any European country, is already at 85% capacity. This means the market could rapidly become overcapacity, and this would impact spot prices.
The number of LNG slots in Finland for the summer season was reduced from 14 to 10, partly due to a reduction in demand. As Europe reduced its dependence on Russian pipeline gas and installed mobile LNG terminals, more will be added to the system this year and in 2019.
In March, the global LNG exports rose to an all-time record due to a rebound in US production. As traders try to find buyers for the shipments, they are contributing to lower LNG prices.The US and Australia are supplying more supplies to help ease the crisis
As the UK lacks large gas storage facilities, its exports to the continent are increasing. LNG continues to flow at record rates. China also saw reexports in the midst of a slow recovery following the lifting of pandemic restrictions. Some vessels are diverting away from South Korea, another major LNG buyer. Japan, another major LNG buyer, has also offered to sell shipments in order to avoid an oversupply.
Leo Kabouche is an analyst with Energy Aspects Ltd. He said that in South America the demand will remain weak until Argentina launches its second floating terminal in May in time for cooler weather in Southern Hemisphere.
Even so, annual maintenance planned at gas plants from late April to the summer may be able to limit excessive supplies. There are also other risks, such as further reductions in Russian deliveries, or unplanned outages. Global LNG supplies are expected to be limited for the next two years.
This is reflected in the forward prices which will be higher in the coming weeks and especially in the winter and continue to rise until the beginning of 2025.
In a recent note, the French Institute of International Relations stated that “for 2023, Europe’s gas balance will be much more fragile than it was last year.” “Any minor disruption in supply can have major effects.”