Europe’s Lack of Regasification Capacity Causes LNG Supplies to Sit Offshore
- October 18, 2022
- Posted by: Quatro Strategies
- Category: Energy
Dozens of vessels carrying LNG for Europe have had to wait off the coasts of Spain as they are unable to secure slots to unload. Spanish grid operators said they may have to suspend loading in order to deal with this situation, which they described as “exceptional”. Europe has been battling with an energy shortage since Russia cut off gas flows after the West imposed sweeping sanctions on Moscow in response to its invasion of Ukraine. The region has been scrambling to find alternative sources for the fuel, including LNG, but the arrival of the cargoes has exposed Europe’s lack of regasification capacity. The sites that convert LNG back to dry natural gas are operating at their maximum.
If the bottlenecks are not resolved soon, the ships waiting off Spain’s coasts may look to drop their cargo in other ports outside Europe.
There are more than 35 LNG vessels that have been circling off Spain and around the Mediterranean, with at least eight of them anchored off the Bay of Cadiz.
Spain is able to offer just six slots this week at its regasification terminals for cargoes. The number is less than a fifth of the number of vessels waiting off its coasts. Spain has six LNG regasification terminals in total.
Spain’s national grid operator Enagas issued a statement on Monday, saying it may have to suspend unloads due to overcapacity, describing it as a “declaration of exceptional operational situation”.
The company also said high occupation levels at the country’s regasification plants was expected to remain at least until the first week of November.
There are also other LNG ships anchored off the coasts of other European countries. It could mean dozens more are waiting.
The shortage of regasification plants, or pipelines connecting countries that have those facilities to other European markets, means that the LNG floating offshore cannot be used.
In addition to low capacity of regasification sites, another bottleneck is created by lower industrial demand as Europe’s economy slows down and lower than expected consumption in Spain due to unseasonably warm weather.
Some analysts also believe that another reason for the congestion is that sellers expect gas prices to rise again as winter approaches and heating demand increases, so they are waiting to sell their cargoes at higher prices.
Price of an LNG cargo delivered in late November or early December is around $2/mmBtu higher than current prices.
Earlier on Monday, China halted LNG sales to foreign buyers to ensure its own supply, which market players say might push more vessels to head to Asia.
Spain has the biggest regasification capacity in the European Union, accounting for 33% of all LNG and 44% of LNG storage capacity.
This week, the leaders of France, Germany, Spain and Portugal are scheduled to meet to try to reach an agreement on the MidCat pipeline that could carry Spanish gas – and in the future hydrogen – to central Europe.
MidCat would create a third gas connection between France and Spain, which its main backers, Madrid, Lisbon and more recently Berlin, say would help Europe reduce its Russian gas reliance.
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