Europe LNG port congestion could last for several more weeks

The dozens ships carrying liquefied natural gas (LNG) that have anchored off Spain’s Bay of Cadiz are often there not because they cannot find anywhere to offload their cargo, but because they anticipate getting more for their cargo if they wait until December, several industry sources have claimed.

It has been reported that the ships going round in circles off the Iberian coast and in the Mediterranean, burning fuel, had been unable to secure slots to unload their LNG cargoes. This was because the plants that convert the superchilled fuel back to gas that can be used by industry, offices and homes were operating at maximum capacity.

While it was an undeniable fact that Europe has two significant problems – a lack of regasification capacity, and a lack of infrastructure that can move the restored gas from one country to another – just as the continent stocks up for a winter of substantially less Russian pipeline gas, it has been claimed that some of the waiting ships are part of a trading strategy from their respective companies, anticipating higher prices.

Reuters and Bloomberg have reported anonymous sources within the sector stating that the cargo carriers were “waiting for higher prices. If one single idling vessel discharges its cargo, the price will immediately collapse by affecting the other cargoes on the queue and this domino effect is so painful in terms of opportunity cost,” one of the sources said.

Rystad Energy has noted that European natural gas prices were currently at their lowest since June, dropping 28% in a week, partly due to high inventory levels and above-normal temperatures. Samuel Good, head of LNG pricing at commodity pricing agency Argus, said that “for those floating storage cargoes sold on a DES (delivery ex ship) basis, we’re expecting most of these to be delivered in early November, though some firms may push deliveries yet further into winter”.

By the middle of this week there were nine vessels anchored off Cadiz, three of them belonging to Spain’s Naturgy: Castillo De Caldelas, Rioja Knutsen and Iberia Knutsen, two industry sources said.

One of the other ships belongs to BP, while three belong to commodity trader Trafigura and one to US Cheniere. The last one was empty. Vessels are sometimes subleased by other companies.

A Naturgy spokesperson said that its ships have assigned discharge slots in Spain and are waiting for those dates to unload.

Toby Copson, global head of trading and advisory at Trident LNG, said that cargoes were unlikely to be redirected to Asia because freight costs were rising and prices there remained lower than in Europe.

Meanwhile, some tankers that had been waiting in the Mediterranean since September recently began moving again, heading for Northwest Europe and UK terminals, according to data intelligence firm ICIS.