LNG: Still a sellers’ market

As the LNG prices in the international market ease off, there is excitement in some Pakistan circles hoping to get hold of some vessels during peak winters. The European seas have a large number of idle LNG vessels, waiting to be offloaded. This has given a (false) hope to many Asian buyers including Pakistan, that the glut in Europe could mean further drop in prices and more LNG available for Asian buyers.

LNG worth over $2 billion has queued up outside European LNG receiving terminals, which are brimming near full capacity. European LNG market continues to be the premium market and sellers are lining up in Europe in anticipation of a price resurgence. Market observers assert that the LNG vessels on the European shores have more incentive to hold positions, instead of rushing East.

That is because temperatures across Europe have been higher than the last few years around the same time of the year- delaying winters by 20-25 days. The storage capacity is near 100 percent for most buyers, and the slowdown in demand means it is taking longer than earlier expected to get rid of the gas. That said, it will not remain like this forever, which is why, contracts for December and January are still trading significantly higher than October and November.

Asian LNG prices have continued to be higher than the European counterparts, and the freight charges have also registered the highest in over six months. December and January contracts are trading 35 percent higher than November. The availability of vessels remains scarce, and even the spread between Europe and Asian markets would not be enough, as firms sit tight in anticipation of lower temperatures across Europe that could see the storage go down – much like the situation seen with crude oil around the peak of Coronavirus.

For Pakistan, there is not much to look forward to. Pakistan failed to attract any bidders for the long-term supply contract and will continue to struggle finding vessels in the spot markets. Gas load shedding will return to near peak this winter. The authorities have continued to shy away from taking the pricing call on gas – as the circular debt keeps mounting. Recall that the government had committed to increase gas prices more than what was prescribed by the regulator – but that has not yet seen the light of the day. More delays are only going to exacerbate the mess that the gas sector has lately become.