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Europe's Price Premium Spurs LNG Cargo Diversions

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The massive price spike on the European benchmark Dutch TTF hub has thrust the continent into a rare premium position over Asia for spot LNG volumes. This has resulted in a wave of cargo diversions from Asia back toward Europe in recent days.

The TTF front-month January 2022 contract has reached new all-time highs in consecutive sessions in the last several days, primarily aided by Russian supply restrictions, including a second day Wednesday with no westerly flows on the Yamal-Europe pipeline. and low storage stocks.

The TTF front month closed at €180.3 per megawatt hour ($59.7 per million Btu) on Tuesday, Dec. 21, up from €147/MWh ($48.7/MMBtu) day on day.

However, in Asia, traditionally the premium region for spot LNG, the price surge has been capped by lower demand and ample supply.

Northeast Asian spot LNG prices were assessed $41/MMBtu by Energy Intelligence on Dec. 21, which meant that Europe has flipped into the premium position for spot LNG.

US Cargo Diversions

Energy Intelligence already suggested on Dec. 15 that the rapidly soaring TTF benchmark price could outpace gains in Asia spot LNG prices, which could lead to cargoes being diverted from Asia to Europe to take advantage of the price increase.

On the same day, the first cargo diversion occurred when the 174,000 cubic meter capacity Minerva Chios, laden with a cargo from the US Sabine Pass plant, after crossing the Suez Canal and sailing in the India Ocean, turned back toward Europe, data from analytics firm Kpler showed.

The vessel, likely under charter to Royal Dutch Shell, is now located in the Red Sea and is set to cross the Suez Canal in the next day to reach the Mediterranean Sea.

The 173,400 cubic meter Maran Gas Vergina did an even longer voyage. It diverted back toward Europe before it reached Japan's Sodegaura terminal, its original destination.

The vessel lifted a cargo from the US Cove Point plant on Nov. 20, but after sailing through the Atlantic Ocean, the Mediterranean Sea and crossing the Suez Canal and subsequently the Red Sea and the Indian Ocean, it turned back on Dec. 17 and is about to re-enter the Red Sea, according to Kpler.

Another potentially diverted vessel is the 177,000 cubic meter Marvel Crane, which after loading at the US Cameron plant, headed south in the Caribbean Sea, which usually indicates a destination in South America or Asia. However, on Dec. 17 it turned east and started broadcasting the UK's South Hook terminal as its destination with expected arrival on Dec. 30.

African Cargoes Rerouted

Some cargoes from Africa are also being redirected to Europe.

Nigeria LNG's 170,000 cubic meter LNG Finima II was heading towards Asia in the Indian Ocean, after lifting from the Bonny export facility on Nov. 29, when it suddenly turned north on Dec. 15 and began broadcasting France's Fos Cavaou as its destination. The vessel is now heading toward the Red Sea and is expected to arrive in the French terminal on Jan. 2.

The 162,000 cubic meter Maran Gas Sparta was also diverted from its route toward Asia and is now heading north in the Atlantic Ocean.

The vessel, chartered by Royal Dutch Shell, lifted a cargo from Equatorial Guinea's Punta Europa plant on Dec. 14 and was heading south, towards the Cape of Good Hope, before changing course on Dec. 20.

Power Prices Follow Suit

Before Covid-19 and the recent gas price crisis, power prices in the UK and the EU were much lower than today.

In the UK, the November 2018 contract was roughly €70/MWh, falling to €51 and €49 in 2019 and 2020 as Covid-19 quashed demand. Spot day-ahead prices are now above €400/MWh and touched €484/MWh on Dec.15 as news emerged that French nuclear power output was lower due to unplanned safety-issue outages and less pipeline gas was coming from major supplier Russia.

Across Northwest Europe, a similar picture has emerged. Last December, monthly baseload power prices in Germany, France and the Netherlands were in a €43-€48/MWh range. This week they have jumped to a range of €396-€452/MWh, with the top end of the range seen in France, where nuclear outages are aggressively supporting prices.

Given that the faults in safety systems at some French nuclear plants could extend well into the new year, there is unlikely to be a respite from the high power prices, especially if the weather turns colder over the festive period.

Cargo Diversions
VesselOriginDiverted FromDiverted ToDate of Course Change
Minerva ChiosSabine PassFar EastEuropeDec 15
LNG Finima IIBonnyChinaFos Cavaou (France)Dec 15
Maran Gas VerginaCove PointSodegaura (Japan)EuropeDec 17
Marvel CraneCameronChinaSouth Hook (UK)Dec 17
Maran Gas SpartaPunta Europa (Eq. Guinea)AsiaEuropeDec 20

Topics:
LNG Demand, Gas Demand, LNG Supply, LNG Spot Trade, LNG Prices, Gas Spot Markets, Gas Futures and Derivatives
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