Asian buyers are trying to resell their contracted US LNG volumes and portfolio sellers offload their excess cargoes into Belgium, the United Kingdom, and France. Imports into the UK and France are scheduled to be around 2 MMt each by the end of the month, while over 1 MMt could have discharged in Belgium.
Total LNG deliveries to Europe are expected to reach nearly 11 million metric tons (MMt) - a 14% hike from the previous record set in December. The record influx comes at a time when the coronavirus pandemic has made EU-wide gas demand collapse at double-digit rates.
“This unprecedented surge of LNG supply to Europe is certain to cause knock-on effects. Storage inventories will build up earlier than normal and that will put additional downward pressure on prices in the third quarter and winter delivery months. It is a chain reaction,” said Shankari Srinivasan, vice president, gas and power, IHS Markit.
Downward pressure on Q3 gas prices
Short-term demand is expected to decrease substantially in the coming weeks as several European government are likely to extend lockdowns to slow down the spread of the coronavirus until after Easter, and potentially into early May.
As Europe absorbs increasing LNG arrivals, storage has begun net injections and pipeline supply is already reducing compared to this point last year. Early storage fill will further pressure Q3 and winter delivery prices.
EU and UK underground storage facilities were 55% full as of 25 March, 21 points above the five-year historical average, according to IHS Markit data. LNG inventories in Northwest Europe stood slightly above 50%, with no signs of send-out abating as volumes surge into Northwest Europe.
“Some volumes are increasingly being redistributed between Northwest European and Spanish terminals as capacity holders juggle deliveries between terminals,” Srinivasan commented. Pipeline supplies are also coming under pressure, with Russian pipeline flows already down 16% year-on-year in February, and likely to ease off further.