Europe Gas Rises With Supply Risks as LNG Cargoes Idle at Sea

The volume of liquefied natural gas (LNG) stored on ships has reached its highest level since May, signaling that weak demand and high inventories in Europe are driving the fuel towards Asian markets. According to Bloomberg data, over 3.1 million metric tons of LNG have been on the water for more than 20 days this week, surpassing the average for the season. This comes as European gas storage levels are almost 84% full, reducing the immediate need for additional supplies due to higher flows from Norway and sluggish industrial demand. However, the recent rise in benchmark futures raises questions about how long the lack of LNG deliveries can last if demand for fuel picks up later this year amid a colder-than-expected winter. Prices have also seen some gains recently due to concerns about escalating tensions between Russia and Ukraine and heat waves in parts of Europe disrupting energy networks. Nevertheless, prices are still significantly lower compared to the beginning of the year and gas consumption remains subdued, indicating an excess of available fuel in the market.

Analysts at JPMorgan Chase & Co. predict that even if LNG imports to Europe are significantly reduced for the rest of the summer, storage levels in September could still climb to 99%. They have lowered their price forecasts for the third quarter to €20 a megawatt-hour from €27 to reflect “storage congestion pricing.” Despite these developments, Europe remains cautious after last year’s energy crisis. Traders are monitoring maintenance schedules in Norway following extended outages last month, and additional works are already planned for this week. LNG analyst Alex Froley at Independent Commodity Intelligence Services warns that if the coming months experience prolonged cold periods, it could lead to renewed competition for gas. Froley notes that the loss of Russian pipeline gas remains a significant structural change that has not yet been replaced by the limited new output starting up in 2023.

In the European gas market, Dutch front-month futures, which serve as the gas benchmark, rose 6.1% to €32.41 a megawatt-hour in Amsterdam after earlier declines. The UK equivalent contract is also experiencing an increase.

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