Europe’s lowest levels of natural gas in storage in nearly two decades risk intensifying the race for LNG supply in the coming months as both Europe and Asia are competing for a shrinking pool of supply, with the Middle East’s LNG still blocked at the Strait of Hormuz.
“The potential for a global ‘fight for fuel’ is there, particularly in a colder winter,” Go Katayama, principal insight analyst for LNG at intelligence firm Kpler, told Bloomberg.
Europe is heading into the winter with one of the lowest levels of gas in storage in the past two decades as the war in the Middle East crippled LNG supply from Qatar, sent gas and LNG prices in Europe and Asia skyrocketing, and intensified competition for the shrunk pool of readily available global LNG cargoes.
A perfect storm of elevated demand for filling depleted storage and electricity during the summer heatwaves, and slashed global LNG supply with Qatar’s cargoes trapped behind the Strait of Hormuz has pushed European benchmark prices to three-and-a-half-year highs.
The high prices, with front-month futures higher than those further out in time, have discouraged stockpiling for most of the summer. But Europe doesn’t have a choice and needs to fight for gas to fill storage sites to reasonably adequate levels before December to avoid a winter supply crunch.
With gas in storage at such low levels ahead of the coming winter, Europe still needs to buy gas worth over $8.1 billion at current prices to reach even its lowest storage target of 75%, according to Bloomberg calculations.
Currently, the EU storage sites are about 66% full, the lowest level for this time of year in nearly two decades and well below the five-year average of over 80%.
At present, LNG netbacks favor sending spot LNG to Europe over Asia, according to ING’s analysts, after months of Asia outbidding Europe for spot supply.
“But as we move closer to the Northern Hemisphere winter, competition between the two regions is likely to pick up, particularly if Qatari LNG remains largely absent from the market through year-end,” ING commodities strategists Warren Patterson and Ewa Manthey wrote in a note earlier this week.
By Tsvetana Paraskova for Oilprice.com
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