Written by 6:14 pm Europe Economy

Dozens of LNG-laden ships queue off Europe’s coasts unable to unload

LONDON/MADRID, Oct 17 (Reuters) – Dozens of ships carrying liquefied natural gas (LNG) are circling off the coasts of Spain and other European countries unable to secure slots to unload because plants that convert the seaborne fuel back to gas are full.

Europe is facing an energy supply squeeze as Russia has progressively cut gas flows after the West imposed sanctions in response to the Ukraine war.

The region has had to find alternative supplies, including LNG, but the arrival of multiple cargoes of the superchilled fuel has exposed Europe’s lack of “regasification” capacity.

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There are more than 35 LNG-laden vessels drifting off Spain and around the Mediterranean, with at least eight vessels anchored off the Bay of Cadiz alone, traders, analysts and sources at LNG terminals familiar with the situation said on Monday.

Congestion at Spain’s LNG terminals

The backlog of cargoes has raised concerns about Europe’s ability to process the LNG supplies needed to compensate for the lack of Russian pipeline supply.

Spain is offering just six slots at its regasification terminals for cargoes this week, an industry source said, less than a fifth of the number of vessels queuing off its coasts. The country has six terminals in total.

There are also LNG vessels at anchor near other European countries which could mean dozens more are waiting, one source with knowledge of the situation said.

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.
“We have seen a high number of cargoes waiting offshore in southern Spain or circling in the Med, as well as some cargoes waiting off the UK,” said Alex Froley, LNG analyst at data intelligence firm ICIS.

The bottlenecks have been compounded by lower industrial demand as Europe’s economy slows as well as lower-than-expected domestic consumption in Spain due to unseasonably warm weather.

ICIS’s Froley said another reason for the congestion is that prices are expected to rise as winter approaches and heating demand increases, so some ships are waiting to sell their cargoes at a higher price that can offset the extra shipping costs incurred by sitting offshore.

“This strategy partly works because some companies have flexibility in their shipping portfolios due to outages like the closure of the U.S. Freeport plant,” Froley said.

He was referring to the second-largest U.S. exporter of LNG that halted operations in June after an explosion and fire.

“If more cargoes were being produced companies might not be able to leave their ships waiting around so long,” he said.

If the backlog is not cleared soon those ships may start looking for alternative ports outside Europe to offload their cargo.

Earlier on Monday, China halted LNG sales to foreign buyers to ensure own supply, which market players say might push more vessels to head to Asia.

With its six plants, Spain has the biggest regasification capacity in the European Union, accounting for 33% of all LNG and 44% of LNG storage capacity.

Spain’s gas tanks are 80% full on average, close to their technical limit, based on data published by Enagas, Spain’s national gas grid operator.

“This data is very positive in terms of guaranteeing energy supply for the winter,” said an Enagas spokesperson when asked about the tanks.

The lack of pipeline infrastructure means that this gas cannot be transported to other European countries. 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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Reporting by Belén Carreño and Marwa Rashad; Writing by Charlie Devereux. Editing by Jane Merriman

Our Standards: The Thomson Reuters Trust Principles.

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