The markets and speculation: the case of LNG trading

Eamon Dyas 

More than 35 vessels laden with LNG (Liquid Natural Gas) were drifting around the Mediterranean in October. The explanation I read was the limited landing slots in Spain. I suspect the reason is a combination of inadequate landing facilities and shippers taking advantage of this by using the tankers as off-shore storage facilities for a product that can only increase in value as the winter approaches. 

However, I’m not sure how the contracts for these things work when it comes to LNG. In the case of grain the price is usually fixed by the purchaser prior to the point of the cargo’s departure. This is also usually tied to the insurance arrangements. 

Nonetheless, in the case of LGN, in the current volatile market I can well imagine that there will be many energy speculators who insert themselves between the original seller and end-purchaser and exploit the time lag between the departure and arrival of the cargo and see it as a guarantee of greater profits. 

Such speculators will undoubtedly be aware of the logistical difficulties created by the inadequate landing facilities in Europe when they have undertaken their investment in LNG.  So “resting” their cargoes in the Mediterranean is all to their advantage. 

The problem is that such enterprising capitalists are in the meantime clogging up the means by which LGN is delivered to the end user. There is a limited number of LGN-ready tankers available on the high-seas and the more of them that sit around waiting to unload their cargoes the lesser volume of that product that can be transported – a factor that in itself influences the market. When it comes to tanker-facilitated cross-Atlantic trade the mechanism for delivery and the inevitable time-lag between departure and arrival all lends itself to unscrupulous behaviour from which the consumer ultimately suffers. 

The EU is arguing for and against setting an upper limit to the price of gas:  if the price could not go up beyond a certain point, this would put an end to speculation.  There was an agreement to set this cap, but the details of in what circumstances this would take place have not been agreed according to the FT 21/10/22.

LNG tankers are queuing up to unload in Europe

On quantities arriving from US:

“U.S. LNG exports to Europe continue to be strong, despite the outage at Freeport LNG. In September, U.S. LNG producers shipped 87 cargoes of liquefied gas abroad, with the total at 6.25 million tons, Reuters reported earlier this month citing tanker tracking data. Of this, 70 percent went to Europe, the data showed.”

And then, buried at the end of the article regarding the “queues” of tankers for unloading:

“… According to ICIS’ Alex Froley, however, insufficient regasification capacity is not the only reason for the pile-up: prices for later deliveries of LNG in Europe are some $2 per mmBtu higher than current prices, which may have motivated some traders to keep their cargo on the water until late November or early December.”