Europe’s gas rises on supply risks as LNG cargoes stall at sea Ship’s crew

(Bloomberg) –

LNG stored on ships rose to its highest level since May, in a sign that weak demand and high inventories in Europe are pushing the fuel toward Asian markets.

The amount of LNG remaining at sea for more than 20 days topped 3.1 million tonnes this week, well above the seasonal average, according to data compiled by Bloomberg. This is happening as Europe’s gas storage facilities are almost 84% full, reducing the immediate need for additional supplies due to higher inflows from Norway and continued sluggish industrial demand.

But rising benchmark futures are raising questions about how long the shortage of LNG supplies can last when demand for fuel picks up later this year amid a colder-than-expected winter. Prices have also seen some gains lately amid concerns about escalating tensions between Russia and Ukraine and heatwaves in parts of Europe that could disrupt energy grids.

But year-to-date they’re still about 60% down and gas mileage is subdued for now, suggesting there’s more fuel available in the market than is currently needed.

Even if LNG imports to the region are significantly reduced for the remainder of the summer, analysts at JPMorgan Chase & Co. still expect inventories to rise towards 99% in September. They lowered their price forecasts for the third quarter from €27 to €20 per megawatt-hour to reflect “storage shortage pricing.”

However, after last year’s energy crisis, Europe is not completely out of the woods. After lengthy outages over the last month, dealers continue to monitor the maintenance schedule in Norway and some additional work is already planned for this week.

Should there be prolonged cold spells in the coming months, it could lead to renewed competition for gas, said LNG analyst Alex Froley of Independent Commodity Intelligence Services.

“The loss of Russia’s pipeline gas remains a massive structural shift that cannot yet be replaced by limited new production from 2023 onwards,” he said.

Dutch front-month futures, Europe’s gas benchmark, rose 6.1% to €32.41 a megawatt-hour as of 3:44 p.m. in Amsterdam after earlier declines. The settlement contract in the UK rises.

–With the support of Elena Mazneva.

© 2023 Bloomberg LP

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