LNG tankers reroute for Europe as prices soar on continent

Natural gas prices in Europe, well over price levels in Asia, are prompting LNG tankers to reroute mid-voyage and head for Europe as the gas supply crunch on the continent worsens.

Buyers in Asian countries have outbid Europeans for LNG shipments for much of the year, but with storage now full across Asia, uncommitted cargoes from the Atlantic basin that were heading for Asia are being turned round by their owners and sent to Europe to cash in on soaring prices and demand.

The ships carrying liquefied natural gas to Europe include the first Australian LNG tanker headed for the continent in a decade.

American LNG exports are expected to rise significantly in 2022, surpassing quantities exported by Qatar and Australia.

According to US agency EIA, the Energy Information Administration, American LNG exports will rise to 11.5 billion cubic feet annually in 2022, 22 percent of projected global demand.

The US is expected to maintain the leadership in LNG exports until at least 2025, when Qatar is scheduled to launch an extension of its North Field gas deposit.

According to Reuters, 13 percent of American LNG exports in 2021 went to South Korea, 13 percent to China and 10 percent to Japan.

Three new gas liquefaction plants are planned to be launched in the US in 2022, by Cheniere Energy, Venture Global, and Tellurian.

 

More energy price hikes feared as Europe searches for solution

Another round of record-breaking energy price increases throughout the continent could be looming. Europe is primarily placing its hopes on an increase of Russian gas supply, which would greatly ease the ongoing price ascent, but, for the time being, energy prices are continuing to rise at unfathomable rates.

Under the currently alarming conditions, shaped by an unfavorable combination of international market trends, including main supplier Russia’s subdued gas supply to Europe, Dutch TTF hub futures for November contracts are set to once again reach levels of 160 euros per MWh. This would skyrocket wholesale electricity prices to 350 euros per MWh, a 70 percent increase on the current record level of 204 euros per MWh and 300 percent higher than a year ago.

Russia has cut back on its gas supply to Europe as a means of pressuring the EU for approval of its Nord Stream 2 gas pipeline, running through the North Sea to Germany. The project is opposed by some EU members as they would lose significant sums in transit revenues.

The EU has been left without a Plan B and greatly dependent on Russian gas supply for a number of reasons, including a gas reserve drop in many countries due to the summer’s prolonged heatwave, as well as increased LNG demand in Asia.

In Greece, roughly 50 percent of the country’s electricity generation is produced by natural gas-fired power stations, meaning gas price levels directly impact electricity prices.

 

Factors pushing up gas prices, economic activity threatened

A combination of market conditions and structural matters has unbalanced natural gas markets throughout Europe, driving prices higher, which is severely impacting electricity prices.

Recovering economies following pandemic-induced flatness, combined with a policy applied by Russia, Europe’s main supplier, to significantly restrict gas outflow to the continent, has created energy crisis conditions.

In mid-August, Russian gas outflow through the Yamal pipeline, running across Russia, Belarus, Poland and Germany, has not exceeded 20 million cubic meters per day, following levels of as much as 49 million cubic meters per day just weeks earlier, still well under usual levels averaging 81 million cubic meters per day.

According to analysts, this reduction has been attributed to Gazprom’s preference to supply Russian gas through the Nord Stream 2 pipeline, bypassing Ukraine and Poland.

LNG supply to Europe has also fallen in recent times as Asian countries appear more willing to pay higher prices.

In addition, prices are also being impacted by EU climate-change policies designed to limit the use of fossil fuels, lignite as well carbon emissions, all of which has greatly increased demand for natural gas, not only in Europe, but Asia and the US, too, pushing up prices to levels of 48 euros per MWh in recent days.

Natural gas shortages have driven wholesale electricity prices higher. In Germany, for example, wholesale electricity prices have risen by 60 percent over the past year. In Spain, the government has reduced energy consumption taxes in an attempt to subdue the wave of price rises.

The situation in the energy market is extremely worrying as it affects economic activity and is placing millions of households at risk of finding themselves in energy poverty.

PPC bond issue, ESG-linked, attracts top international funds

Some of the world’s biggest investors are among the foreign institutional investors who participated in power utility PPC’s recent bond issue as well as a supplementary issue staged yesterday, through which the corporation raised a grand total of 775 million euros.

Participants included US fund Blackrock, managing capital worth nearly 8 trillion dollars, fellow American fund Fidelity, whose portfolio is worth 440 billion dollars, the UK’s Apollo, managing 455 billion dollars, and France’s Pictet, with an investment portfolio worth 689 billion dollars.

The turnout for PPC’s bond issues was dominated by real-money investors, or institutional investors handling enormous amounts of cash reserves for long-term investments in companies with solid prospects. Their clients are chiefly retirement funds as well as corporations looking to the future.

Information made available until now on PPC’s bond issues indicates that 70 percent of subscribers were from abroad and 30 percent domestic. Among the foreign investors, half are institutional and real-economy investors, many of these cross-Atlantic.

US and European investors participated in the issues with shares of close to 50 percent each, while investors from Australia and Asia represented about 5 percent of subscriptions.

PPC’s initial bond issue raised 650 million euros at a borrowing rate of 3.875 percent, while yesterday’s follow-up issue raised an additional 125 million euros at 3.67 percent.

Bond issues linked with ESG (Environmental, Social and Governance) terms, as was the case with PPC’s two issues, are in high demand, internationally.

Through its issues, five-year bonds maturing in 2026, PPC has committed to a 40 percent reduction of CO2 emissions, from 23.1 million tons in 2019 to 13.9 million tons by 2022. If this target is not achieved, 50 basis points will be added to the yield.

PPC expects major LNG tender turnout for 2.7 million MWh

Gas suppliers are expected to turn up in numbers for a power utility PPC tender expiring today with offers to provide three LNG shipments needed by the utility between March and May. PPC plans to purchase a total of 2.66 million MWh through this tender.

Between nine and ten gas suppliers, including major Greek and foreign LNG players, will submit offers, PPC has been informed, according to energypress sources.

Besides leading Greek gas traders, the procedure is expected to attract companies such as Rosneft, Eni Trading, Gunvor, Glencore, Shell, Cheniere and Tellurian.

All participants were required to sign Master Sale Agreements, committing them to their offers without any revisions.

PPC wants a first LNG shipment of 900,000 MWh on March 24, a second delivery of 815,000 MWh on April 21 and a third of 950,000 MWh on May 20.

Today’s tender confirms a change of strategy by PPC, searching markets around the world, from Asia to Qatar and the USA to Russia, for low-priced LNG.

The continual drop in LNG prices promises major cost savings for a company the size of PPC, requiring 1.35 bcm per year.