IHS Markit: LNG deliveries to Europe to reach all-time high in March

Total LNG deliveries to Europe in March are expected to reach nearly 11 million tonnes, a 14% hike from the previous monthly record set in December 2019. The ongoing supply push into Europe comes just as gas demand is collapsing at double digit rates.

“The record influx of LNG deliveries will likely swell EU gas storage—which are already well above historic averages—and put further downward pressure on prices that are already at historical lows. Nevertheless, it will be the first time that Europe’s imports are nearly equivalent to, or even greater than, the amount South Korea and Japan combined import in a month.”

“The record in LNG deliveries to Europe is a domino effect from the demand impacts of the coronavirus pandemic. Asian buyers are reselling volumes purchased from the US and portfolio sellers are offloading their excess cargoes as well. This all comes as European gas markets are already in extreme distress,” said Michael Stoppard, chief strategist, global gas, IHS Markit.

Northwest Europe has increased imports as some Asian buyers resell their US volumes and portfolio sellers offload their excess cargoes into Belgium, UK, and France. Imports into the UK and France are scheduled to be around 2 million tonnes each by the end of the month, while over 1 million tonnes could have discharged in Belgium. Meanwhile, Eastern Mediterranean buyers that had been absorbing large spot volumes through the winter are showing signs of slowing down their imports.   

According to IHS, Europe will start summer next month with record conventional storage levels and an expected drop in demand. Short-term demand is expected to decrease substantially in the coming weeks as the continent takes the hit from the consequences of COVID-19.   

EU and UK underground storage facilities were 55% full as of Mar. 25, 21 points above the 5-year historical average. LNG inventories in Northwest Europe stood slightly above 50%, with no signs of send-out abating as volumes surge into Northwest Europe (OGJ Online, Mar. 27, 2020). Some volumes are increasingly being redistributed between Northwest European and Spanish terminals as capacity holders juggle deliveries between terminals. Pipeline supplies are also coming under pressure, with Russian pipeline flows already down 16% year-over-year in February.            

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 the third quarter and winter delivery prices.  

“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.”