60 LNG carriers adrift at sea! Europe's gas situation eases, only to encounter new congestion.

Dozens of LNG tankers are queuing off the European coast awaiting unloading, as port congestion-induced capacity shortages further drive up LNG freight rates. Despite falling European LNG prices due to high inventories, the European energy crisis appears far from over.

According to foreign media reports, 60 LNG vessels are currently idle or slow-moving in Northwest Europe, the Mediterranean, and the Iberian Peninsula due to Europe's infrastructure being unable to cope with the surge in LNG vessel unloading. Of these, 35 LNG vessels are queuing near Spain and the Mediterranean waiting for unloading berths at LNG regasification facilities. Spain, with 6 LNG import facilities, has the most in Europe.

Augustin Prate, Vice President of Commodity Markets at Kayrros, a climate and energy data analytics company, said that the increase in the backlog of LNG vessels in Europe has lasted for about five to six weeks.

Europe's natural gas supply was originally heavily reliant on Russia, but since the outbreak of the Russo-Ukrainian war, Russian natural gas has rapidly exited the European market, causing European energy prices to surge rapidly. At the end of August, European natural gas prices soared to over US$332.6 per megawatt-hour. Since September, Europe has been aggressively increasing its LNG purchases, and after a large number of high-priced purchases, European natural gas reserves are nearing their upper limit.

According to data from the Gas Infrastructure Europe (GIE), as of October 24, the overall natural gas storage rate in the EU was 93.61%, and Germany, the largest economy, saw its storage rate climb to 97.5%. Despite high inventories, a large number of LNG vessels are still heading to Europe. Data shows that Europe will receive 82 LNG vessels this month, an increase of 19% compared to September.

Fraser Carson, an analyst at Wood Mackenzie, an energy research firm, has counted 268 LNG vessels sailing globally, significantly higher than the annual average of 241, with 51 near Europe. He explained that the EU's target of filling storage facilities to 80% by November 1 has been achieved and exceeded ahead of schedule. In addition, the demand for regasification equipment remains high, but such facilities are not numerous in Europe. Most importantly, the weather has been very mild since the beginning of October, resulting in relatively low natural gas consumption in Europe.

        Andrew Lipow, president of Lipow Oil Associates, a US energy consulting firm, said that a large number of LNG vessels have exceeded the capacity of European regasification facilities and cannot unload their cargo in time. This situation will delay the return of vessels to the Gulf Coast ports to load the next batch of cargo, causing LNG inventories to increase beyond market expectations.

As LNG vessels continue to flood into Europe, clogging ports, LNG vessel shortages are becoming increasingly severe, and freight rates are also rising. Data from the Baltic Exchange shows that spot market LNG freight rates have increased sixfold since the beginning of this year, currently reaching US$450,000. Industry insiders estimate that this figure will further rise to US$500,000 per day due to strong demand before winter, and LNG freight rates may even soar to US$1 million by the end of this year.

  Another factor driving up freight rates is that a large proportion of LNG vessels are currently being used as floating storage units due to port congestion, resulting in a shortage of transport vessels. Shipbroking firm Fearnleys believes that more and more LNG vessels will remain as floating storage units for longer periods due to expected price increases and limited fuel receiving capacity. If the situation persists, LNG vessels currently adrift at sea may be forced to seek alternative ports outside Europe to unload their cargo.

With increased reserves, European natural gas prices have recently fallen, from a high of over US$300 per megawatt-hour at the end of August to less than US$100 currently. On October 24, some European natural gas spot prices even turned negative, reaching -€15.78 per megawatt-hour, the lowest price ever recorded.

Despite the price drop, the high transportation costs will undoubtedly push up natural gas prices. Omar Nokta, chief shipping analyst at US investment bank Jefferies, once said that natural gas buyers will include LNG freight rates in the total cost. Another potential factor that could push up LNG costs is that Rystad Energy, a Norwegian energy consulting firm, recently predicted that the restart of the US Freeport LNG project may be delayed.

The Freeport LNG project has been shut down since an explosion in June this year. If the restart is further delayed, it means that more natural gas will remain in the US and will not be exported to Europe and other parts of the world. Rystad points out that this delay will push up US natural gas prices, which will automatically increase international LNG prices.