Global surplus of LNG continues to flow to Europe with expected all-time high in March deliveries
Total LNG deliveries to Europe are expected to reach nearly 11 million metric tons (MMt) — a 14 percent hike from the previous record set in December. The ongoing supply push into Europe comes just at the moment gas demand is collapsing at double digit rates.
The record influx of LNG deliveries will likely swell EU gas storage—which are already well above historic averages—and put further downward pressure on prices that are already at historical lows. Nevertheless, it will be the first time that Europe's imports are nearly equivalent to, or even greater than, the amount South Korea and Japan combined import in a month.
"The record in LNG deliveries to Europe is a domino effect from the demand impacts of the coronavirus pandemic. Asian buyers are reselling volumes purchased from the U.S. and portfolio sellers are offloading their excess cargoes as well. This all comes as European gas markets are already in extreme distress," said Michael Stoppard, chief strategist, global gas, IHS Markit,
Northwest Europe has increased imports as some Asian buyers resell their US volumes and portfolio sellers offload their excess cargoes into Belgium, the United Kingdom, and France. Imports into the United Kingdom and France are scheduled to be around 2 MMt each by the end of the month, while over 1 MMt could have discharged in Belgium. Meanwhile, Eastern Mediterranean buyers that had been absorbing large spot volumes through the winter are showing signs of slowing down their imports.
Europe will start summer next month with record conventional storage levels and an expected drop in demand. Short-term demand is expected to decrease substantially in the coming weeks as the continent takes the hit from the consequences of the coronavirus disease 2019 (COVID-19).
EU and UK underground storage facilities were 55% full as of 25 March, 21 points above the five-year historical average. LNG inventories in Northwest Europe stood slightly above 50%, with no signs of send-out abating as volumes surge into Northwest Europe. Some volumes are increasingly being redistributed between Northwest European and Spanish terminals as capacity holders juggle deliveries between terminals. Pipeline supplies are also coming under pressure, with Russian pipeline flows already down 16% year-on-year (YOY) in February.
As Europe absorbs increasing LNG arrivals, storage has begun net injections and pipeline supply is already reducing compared to this point last year. Early storage fill will further pressure Q3 and winter delivery prices.
"This unprecedented surge of LNG supply to Europe is certain to cause knock-on effects. Storage inventories will build up earlier than normal and that will put additional downward pressure on prices in the third quarter and winter delivery months. It is a chain reaction," said Shankari Srinivasan, vice president, gas and power, IHS Markit.