More than 30 tankers holding liquefied natural gas (LNG) are idling just off the coast of Europe, the Financial Times reported, as traders hold out for higher market prices. According to shipping analytics firm Vortexa, the vessels are carrying a total value of $2 billion of LNG and are sailing slowly to Northwest Europe and the Iberian Peninsula. “LNG ships have been queuing up outside European LNG terminals chasing what they expected to be the premium market for that LNG,” Felix Booth, head of LNG at Vortexa, told the paper. “For now, these ships are incentivized to hold berths” in anticipation that colder weather will increase demand for power and in turn raise prices, he said. Another 30 ships are crossing the Atlantic and are expected to join the tanker fleet before winter, according to data from Vortexa. LNG tankers in European waters have doubled in the past two months as European countries filled their storage tanks close to their limits ahead of winter. In response to Western sanctions over its invasion of Ukraine, Russia has cut gas supplies to some European countries. In turn, these countries bought LNG as a substitute, but the unusually high temperatures led to a drop in heating demand, which in turn kept storage facilities full and prices down.
Contango situation
Natural gas prices in Europe have fallen from their August highs, when they topped 346 euros ($343) per megawatt hour. But traders who keep their tankers offshore expect prices to rise in the coming months as cooler weather sets in and boosts heating demand, freeing natural gas from storage. This has left the market in a “contango” situation, where prices for future delivery trade higher than for immediate delivery, the FT said. A similar situation involving the oil industry occurred during the height of the coronavirus pandemic, when a glut of crude resulted in traders keeping their oil on ships as floating storage, waiting for prices to rise again.
