A standard tanker carries around 143,000 cubic metres of LNG. When this is re-gasified, that equates to around 85 million cubic metres (MCM). The largest Q-MAX tankers can hold nearly double this.
The last three months have seen a huge increase in the amount of LNG coming to the UK and Europe, with import volumes at their highest since the Japanese Tsunami in 2011.
Why is the UK seeing more LNG?
There has been a big increase in Atlantic supply and more of this gas is now heading to Europe. During winter the Northern Sea route to supply Asia is closed due to ice. This makes the Isle of Grain one of the closest markets for Russian LNG.
Last year Europe received very little LNG. Those tankers that did come from the newly commissioned Russian export facility at Yamal, had their gas reloaded onto new tankers and sent on to higher priced markets. There remains a limited number of the ice breaker class LNG tankers, required to cross the Arctic Ocean, and as a result ship-to-ship transfers are now taking place in northern Norway. This enables the terminal to run closer to its capacity, which continues to grow as the third LNG train has just come online. This will lead to a similar jump in Russian supply as the one seen in June 2018.
Europe also received very little gas from the US last year, largely because other markets were paying more and drawing the gas away from Europe.
Even this year when we have received a lot more Russian LNG, a high proportion of that has been shipped on to higher priced destinations.
Further growth in US LNG expected
Looking at the forward prices for the UK and Asia, the spread is set to remain relatively tight for the next six months, which will keep more Russian LNG in the Atlantic (while the Northern Sea route is closed during winter).
The recent supply growth may have almost peaked in Russia with the commissioning of Yamal train three in December. However, we’re only halfway there from the US with a huge growth in supply due in the near future.
With journey times to the UK being half that of Asia, and the future prices showing a marginal Asian premium, some of this gas will come to the UK.
Current shipping rates from Sabine Pass stand at around $1.4 million British Thermal Units (MMbtu) to the UK while they are almost $3MMbtu to Japan.
For the time being we could see more LNG, but that largely depends on what happens in Asia, which has an LNG market four times the size of Europe’s.
Looking forward, the price difference between Asia and the UK supports the case that the near term surge in supply will take some time for demand or import capacity to catch up, with the market not tightening until the early part of 2020.
Whilst nothing can be guaranteed, the growth in supply that had long been expected is finally having an effect on the UK energy market. However, the increasing demand for cleaner fuels will mean that any surplus we see over the next twelve months is likely to be quickly absorbed.
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