Fundamental analysis

Europe has nowhere to put gas. Storages are full, prices have fallen, tankers are waiting to unload and prices are rising

Europe rushed to import LNG from around the world to fill storage. However, its storage capacity is now almost full because of the successful cargo bidding, as well as the unusually warm weather. Gas prices have also fallen sharply and are less than a third of their summer high.

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The risks are still ahead. A lot depends on the weather, in which a cold snap will quickly lead to Europe replenishing its reserves. Governments are also concerned about the threat of new diversions of energy assets that could disrupt the market.

Gas supplies have been declining since last year, moreso since the Nord Stream pipeline was shut down this summer. Mild weather is helping to cap demand so far, but authorities are concerned that lower gas prices will lead to increased consumption, especially when temperatures drop.

As for gas prices, they are close to their lowest since June. Futures are trading at a premium of 44% to November, and costs for next winter are higher, indicating that supply problems are expected to persist. This means that consumption cuts are necessary

Europe’s efforts to build up reserves mean that storage is 93.6% full and Germany’s is 97.5%. While this provides some comfort for the market, it is only enough to meet demand in Germany during two months of colder weather. Europe will need to continue to attract LNG cargoes.

To date, Northwest Europe is on track to receive 82 LNG tankers this month, up 19% from September. More ships are staying longer in floating storage facilities in anticipation of rising prices and amid limited capacity to receive fuel. In Oslo, this situation could last until mid-January. Physically, these tankers have nowhere to unload. The average minimum freight of a gas tanker is $10,000 per day, and all of them are now waiting to be unloaded into overcrowded storage facilities.

The Bloomberg index for loaded tankers that have been on water for 20 days or more rose to its highest level since 2017. Spain’s Enagas SA warned last week that it may have to cap volumes as it has little capacity to absorb excess imports.

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While prices are now falling, demand from Asia could pick up. This could push prices up and also make it harder to fill storage next year.

Meanwhile, European energy ministers are discussing a temporary cap on base gas prices. But one of the main arguments against this measure is that it may be harder for Europe to continue to attract the LNG it needs this winter.

The material has been provided by InstaForex Company – www.instaforex.com


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