(Montel) Ongoing delays for ships going through the Panama Canal – a key conduit for US cargoes to Asia – are nudging LNG deliveries to Europe, while also incentivising floating storage, experts told Montel on Monday.
“Factoring in delays at the Panama Canal, which add upwards of USD 1/MMBtu in shipping costs to the equation, the European market looks relatively more attractive economically [for LNG],” said Adam Bennett, European natural gas analyst at ship-tracking firm Kpler.
“For October loadings the arbitrage to Asia is just open if you are prebooked via the Panama Canal and you can get straight through but if you are delayed it is unlikely to be open given the netbacks [profits] are so marginal,” said a market source, with some vessels having to wait 9-10 days to pass amid low water levels due to a drought.
The average profitability, or netback, of shipping a US cargo from Sabine Pass – including cost, insurance and freight – to Europe for a vessel loaded in mid-October was last assessed at USD 9.98/MMbtu, compared to USD 10.37/MMbtu for the Asian route via the Panama Canal, according to Spark Commodities data.
The netback spread remains narrow for the remainder of the year and favours Europe marginally thereafter to March.
Weak demand
Nevertheless, the EU was “not in great need for gas at the moment”, with the region’s storage sites 94% full, said Bennett, while the bloc was due to see its lowest LNG imports of the year this month.
“With limited space for additional gas in underground storage in Europe, we’ve seen floating storage increase over the past couple of weeks,” he added.
The volume of LNG floating in the water for at least five days has jumped nearly 40% since the end of August to 0.9m tonnes currently, most of it in Asia.
“With floating storage ‘in the money’, especially in October, it provides an attractive alternative,” said Bennett.
“For October loadings the arbitrage to Asia is just open if you are prebooked via the Panama Canal and you can get straight through but if you are delayed it is unlikely to be open given the netbacks [profits] are so marginal,” said a market source, with some vessels having to wait 9-10 days to pass amid low water levels due to a drought.
The average profitability, or netback, of shipping a US cargo from Sabine Pass – including cost, insurance and freight – to Europe for a vessel loaded in mid-October was last assessed at USD 9.98/MMbtu, compared to USD 10.37/MMbtu for the Asian route via the Panama Canal, according to Spark Commodities data.
The netback spread remains narrow for the remainder of the year and favours Europe marginally thereafter to March.
Weak demand
Nevertheless, the EU was “not in great need for gas at the moment”, with the region’s storage sites 94% full, said Bennett, while the bloc was due to see its lowest LNG imports of the year this month.
“With limited space for additional gas in underground storage in Europe, we’ve seen floating storage increase over the past couple of weeks,” he added.
The volume of LNG floating in the water for at least five days has jumped nearly 40% since the end of August to 0.9m tonnes currently, most of it in Asia.
“With floating storage ‘in the money’, especially in October, it provides an attractive alternative,” said Bennett.
