The Ukraine crisis has increased gas prices, but there may be bigger forces at work in the seaborne LNG market. According to VesselsValue, while the world awaits developments on pipeline supplies, ship tracking data on seaborne LNG volumes may calm some fears.
More specifically, the European benchmark TTF gas price has risen 135% so far in 2022, with a near-vertical spike since Russia began hostilities in Ukraine.
Currently, Russia is the world’s largest exporter of gas, and Europe heavily depends on this, as Russia exports approximately 23 billion CBM of gas every day, about half of which goes to Germany, Italy, France and Belarus.
However, the vast majority is piped and neither Russia nor Europe are explicitly threatening pipeline supplies yet. Despite supermajors moving to unwind their interests in the country and a visible impact on Russia’s oil exports, there is not yet any visible drop in LNG volumes
says Vivek Srivastava, senior trade analyst at UK-based VesselsValue.
In addition, he notes that “Russia’s share of the seaborne LNG market is certainly large enough to move the needle on the global supply/demand balance.”
Of the top 20 export regions over the last 12 months, Russia accounted for two, but there are four much larger export regions, which each account for double-digit shares:
- The Middle East Gulf (20%)
- The Gulf of Mexico (14%)
- Southeast Asia (12%)
- West Coast Australia (also 12%).
What is more, neither of the two Russian regions are yet exhibiting any unusual drop in seaborne volumes, as exports are currently trending in line with recent historical averages and last year’s levels.
Compared to oil exports, which have plummeted as traders have shown almost complete unwillingness to buy Russian cargoes, this is to be expected, as oil is dominated by spot purchases, whereas LNG is dominated by long term offtake agreements. The cargoes have, in effect, already been bought
VesselsValue notes.
Nonetheless, when looking at the top four export regions, “the much bigger concern becomes whether a loss of that amount from the top one can be offset by gains from the other three. Volumes from the Middle East Gulf are trending 2 million CBM per day below three-year averages and last year’s levels,” explains Mr. Srivastava.
For now, it appears a 3 million CBM gain in Gulf of Mexico volumes is more than enough to offset this. The region is a relative newcomer to the market and still in ramp up mode. Furthermore, as a newcomer, less of it is shipped under long term offtake agreements and a higher proportion is traded on a spot basis, making it more sensitive to global price signals
This can also be said of the 1 million CBM gain from Southeast Asia, which includes not only major oil and gas producer Indonesia but also regional storage and trading hub Singapore. West Coast Australia, meanwhile, is broadly stable.
Considering the above, VesselsValue highlights that while the market awaits further developments on the fate of Russia’s pipeline gas exports to Europe, “these early indicators from the seaborne LNG market will assuage the worst fears of those in the gas and power industry and bring prices down from current astronomical levels.”
