Europe: Mild winter shifts LNG trades

LNG markets continue to surprise. At the beginning of 2023, the big themes were that European imports would continue to drive seaborne ton-miles higher, supplemented by a resumption of imports into China as economic activity resumes.

In a mid-January webinar presentation by Kristen Holmquist, the lead data analyst at shipbroker and LNG consultancy Poten & Partners, these observations were buttressed by deep underlying analytics.

Any predictions of what might happen are highly nuanced, and subject to a variety of “what-if?” considerations. But Poten’s analytical team suggests that overall seaborne LNG tonnages might rise to around 415 million tons in 2023, up around 20 million tons from 2022.

A major contributor to this uptick will be the US, with the damaged Freeport LNG facility, in the US Gulf (capable of exporting 1.0 - 1.3 million tons/month), to come back online during Q12023, Poten expects. Others are more cautious; Rystad Energy said that a full ramp-up might not occur until mid-2023.

The big demand-side driver of all these numbers is Europe; in Holmquist’s words, “Europe is expected to be in good shape at the end of the winter.” So far, the 2022-23 Winter has been warmer than anticipated, leading to lower gas import demand.

However, pipeline imports from Russia have been down dramatically, with further decreases anticipated during 2023. A big part of the demand picture is driven by imports of LNG in advance of the Winter season.

Holmquist said that the storage buildup during 2022 “…was higher than we expected…” and she added that, so far during the warmer than normal winter months, the levels of gas in storage “…have come down by less than we expected.” The result is that storage is at historically high levels.

China’s economic activity is expected to rebound in 2023, and so the country is also expected to account for 6 million tons of additional demand in 2023 as compared to 2022, though it was noted that anticipated seaborn import levels are still 9.5 million tons below 2021’s 80 million tons.

What does all this mean for LNG shipping? Seaborne rate dynamics were not covered explicitly in the Poten webinar, but it’s possible to offer some demand-side observations on this question. Though much of the gas coming out of the US is sold under term contracts, US exports are often shipped on an “FOB” basis- meaning that purchasers can direct cargoes to either Europe or Asia.

One important feature of the markets has been the sharp drop in European prices as measured by the TTF indicator; after seeing elevated levels for much of 2022, they are now below the Asian JKM numeraire.  

So, at least for this increment of LNG shipping, with the US anticipated to export up to 90 million tons in 2023, we may see a ton-mile increase. With higher prices in Asia, more cargo flows to Asia might balance what may be a lower demand for cargoes bound for Europe with its reduced need to fill up storage in advance of the 2023-24 gas season”, which starts in October.

Anecdotally, analysts at Rystad said that US exports to Asia rose 38% in the first half of January, while gas shipments to Europe slid by 22% during the same time period. They add, “While we do not anticipate an immediate diversion of cargoes towards Asia, with the expected rebound of China gas demand during the year, Europe and Asia markets will undoubtedly see increased competition for available LNG supplies.”

Courtesy Seatrade Maritime News