Europe hopes in vain for American LNG, by Olga Samofalova for VZGLYAD. 22.12.2021.
American liquefied natural gas looks like the saviour of Europe from the aggravation of the gas crisis. This is how the EU viewed the news that US LNG tankers unexpectedly turned around on their way to Asia and headed for Europe. On the other hand, they are trying to blame Gazprom for the record rise in gas prices in the EU due to the reduction in supplies through the Yamal-Europe gas pipeline. But in reality, the situation is exactly the opposite.
American LNG tankers bound for Asia are turning around and heading to Europe to cash in on rising gas prices there, Western media reported. The day before, European gas prices jumped to a historic record $ 2,150 per thousand cubic meters, or € 182 per megawatt-hour. According to Platts, the difference between European and Asian prices is currently the largest on record.
Gazprom is called the culprit of the rise in prices. Because it stopped gas supplies to Germany via Yamal-Europe on December 21 and 22, and booked small volumes of transit for January along this route. On this news, prices in Europe and soared to unprecedented heights.
However, on the news that the American LNG decided to "save" the European market in such a difficult situation, gas prices in Europe dropped in the morning to $ 1,900 per thousand cubic meters. But after lunch they grew again and exceeded $ 2050 per thousand cubic meters.
In fact, neither Gazprom is the culprit in the rise in gas prices, nor is the American LNG the saviour of European markets from fuel shortages.
On the eve the head of the company "Operator GTS of Ukraine" Sergei Makogon accused Gazprom of gas blackmailing Europe "with the aim of the earliest certification of" Nord Stream - 2 ". EU High Representative for Foreign and Security Policy Josep Borrell pointed out that this is what "many believe". Ukrainian Naftogaz went further and on Wednesday filed a complaint with the European Commission, in which it asked to oblige Gazprom to put up for sale through an electronic platform significant volumes of gas for delivery on the Ukrainian-Russian border. They assure that Gazprom deliberately reduced the sale of its own gas in the European spot market, despite the growing demand, and limits the ability of other companies to supply additional volumes of gas to Europe and compete with Gazprom. “This is precisely the key reason for the crisis and record price increases in Europe".
Ukraine's demands are ridiculous. Gazprom can only be obliged to supply certain volumes within the framework of long-term contracts. And the spot market is free trade in short-term gas volumes. Gazprom fulfills all of its contractual obligations, but it is not obliged to sell on the spot market. But the problem is different - European buyers themselves do not want to buy expensive gas there. They prefer to take all the contracted gas and get it from underground storage facilities.
American LNG is also not suitable for the role of Europe's rescuer in a difficult crisis situation.
First, gas carriers with American LNG went to Europe only when the spot price there turned out to be higher than in Europe. Where was the American LNG all summer, fall and early winter? He ignored the problems of the European gas market and went to Asia. Because this is a commercial business, not a charity, and it was more profitable for American gas traders. The Asian gas market is traditionally a premium in relation to the European one, that is, prices are higher there. In rare situations that usually coincide with gas crises, European prices find themselves at Asian levels. And some suppliers believe they can save on gas deliveries to Europe because the route is shorter.
“Shipping LNG from factories in the US to Europe can cost an additional dollar per thousand British thermal units, and to Asia - $ 1.5-2. In addition, when delivering to Europe, empty mileage is reduced, that is, the time and cost of sending back an empty LNG carrier. Why bring it to Asia, if in Europe you can sell a batch for the same money, but quickly drive the gas carrier back for a new batch of fuel”, says Alexander Frolov, deputy director of the Russian Institute of National Energy.
Spot LNG shipments to Europe were estimated at around $ 48.5 per million Btu, compared with $ 41 per million BTU in Asia, according to Platts. In October and November, prices in Asia averaged $ 5 per million BTUs compared to prices in Europe, the brokerage said.
The second important point is that there is no data on the mass turnover of gas carriers from Asia to Europe. Western media cite only two cases when tankers with American LNG did this and one case - with the turn of Australian LNG.
In the first case, the American LNG tanker Minerva Chios was heading east near India, but turned around and headed for the Suez Canal, prompting speculation about its route to Europe. A second US LNG vessel deployed off the Strait of Malacca last week, and a third vessel is due to deliver the remainder of the Australian LNG shipment to Barcelona on December 24 (after most of the shipment was shipped to China earlier this month).
The third point is that it is precisely the departure of American and other LNG from Europe to Asia in 2021 that is one of the main reasons for the formation of a gas shortage in the European market. This happened precisely because Europeans rarely signed long-term contracts for the supply of LNG. The volumes of this gas mainly circulated in the European spot market, which Brussels itself created and cherished.
In addition, Asian consumers prefer to sign long-term oil-linked gas supply contracts, Frolov said. Thus, Asia secured itself against what Europe faced this year - from LNG leaving the spot market, provoking shortages and rising prices. Therefore, tankers can only be deployed with the LNG that was transported for sale on the spot market.
“There is no new trend that American LNG is returning from Asia to Europe. The Asian market accounts for three quarters of all LNG supplies in the world, while Europe and the rest of the world share the remaining one quarter of supplies”, says Alexander Frolov.
“Of course, if prices in Europe rise even higher, then those volumes of gas that are not protected in Asia by long-term oil-pegged contracts may turn around and come to the European spot market. The problem is that Asia also needs this gas, which means that prices there will also go up. Further, a race for survival between the European and Asian gas markets may begin. But I don’t think this is possible in this situation, ”the source continues.
Actually, the morning drop in gas prices on the futures market on Wednesday can be explained by the news about American LNG going to Europe. Investors in the futures market, who do not always understand in detail the intricacies of the energy markets, regarded this as a trend that American LNG will now save Europe from the gas crisis, so it is necessary to sell futures contracts.
However, the reversal of prices back to growth in the afternoon suggests that investors in the futures market have deciphered the real state of affairs with the returning LNG. They were told that this is not a mass phenomenon, but a one-time event.
“Investors in the futures market are most often quasi-players in the gas market. They do not calculate what volumes are actually going to Europe, whether these volumes will be able to meet the demand on the domestic market. They do not even think about what demand is in general on the domestic market. And the demand for gas in the EU during the second half of 2021 was actively decreasing due to the substitution of coal for gas in electricity generation. Simply because coal is cheaper than gas, ”says Alexander Frolov.
It should be understood that when the media talk about the rise in gas prices in Europe, then, as a rule, it is not about the spot market, but about the futures market.
“Futures contracts reflect the worrying anticipation of a dramatic future that the participants in the EU gas market are experiencing. In the futures market, paper volumes are traded, people make money on financial instruments. And on the spot market, it is supposed to trade in physical goods, where gas immediately changes its owner. In the spot market, prices are slightly lower than in the futures market, but, of course, they also grow strongly. Any news can influence the movement of futures. Yesterday - this is a decrease in transit through Yamal-Europe, today - it is a turn of LNG tankers from Asia to Europe, and tomorrow the Kremlin may announce an increase in Russian gas supplies, and prices on the futures market will immediately begin to fall. This is a normal situation”, says Frolov.
According to him, a number of things are incorrectly broadcast in the information field of the West in order to divert responsibility from the people who are actually responsible for the difficult situation in the European energy sector.
The real reasons for the aggravation of the gas crisis in Europe are now not Gazprom, but, firstly, the reduction in electricity production at nuclear power plants in France, as well as at wind farms in Germany and in Europe as a whole. Secondly, the expectation of cold weather. “How Germany and France, and Europe in general, will cope with this weather is not clear. Instinctively, all market participants understand only one thing: they need more energy carriers. That is why the futures market reacts so sharply to all news about gas supplies", the source concludes.