Russian LNG Clout in Europe Strengthens as US Ships Head to Asia

Article content

(Bloomberg) — Europe just can’t seem to shake its reliance on Russian liquefied natural gas. 

The nation was close to becoming the biggest supplier to the region in July after US flows declined amid an outage and higher prices in Asia. The gap in deliveries to western Europe is now the smallest since late 2021. 

The development shows just how hard it is for the European Union to wean itself off Russian supplies to rely more on other producers. While pipeline flows from the east are just a fraction of what they were before the Russian invasion of Ukraine in early 2022, imports of liquefied natural gas from Yamal LNG in the Arctic have remained stable. 

Article content

“This indicates that although Europe wants to reduce its reliance on Russian LNG, such reliance should be seen in the context of the global LNG market,” said Katja Yafimava, a senior research fellow at the Oxford Institute for Energy Studies. “It is still tight and more flexible volumes could sail away.”

While the EU is making it harder for Russia to move LNG around the world, the bloc has stopped short of banning imports outright. Sales to major consumers Spain and France have even increased since the war began. 

The drop in US shipments also shows the danger of relying too heavily on transatlantic exports. Those cargoes typically don’t have destination restrictions, which means that trade flows can quickly change when prices and demand increase outside Europe. 

Overall northwest Europe’s total LNG imports fell by almost 20% in July from a month earlier, according to preliminary data. To some extent, that is down to the summer lull in demand, but it is a warning that supplies can dry up quickly when Asian consumers are willing to pay more. Qatar, the region’s third biggest supplier after the US and Russia, also curbed shipments to European utilities this month. 

Article content

US exports to Europe fell after the Freeport LNG facility in Texas suspended loadings for more than two weeks because of Hurricane Beryl. Egypt has also emerged as a buyer as the nation is struggling with energy shortages, increasing global competition even further. 

Asia Premium 

Traders have consistently favored the Asian market over Europe this summer. The premium is about $5 million per cargo, more than enough to compensate for freight costs, according to Jean Heintz, an independent consultant at Wideangle Energy. As a result, US deliveries to Asia jumped to the highest level since 2021 this month, according to ship-tracking data.

“One could expect more competition closer to and during the winter season,” said OIES’s Yafimava. 

But by late March next year, even more Russian LNG may end up in Europe as EU sanctions on transshipments come into force. New rules will mean that Russian tankers won’t be able to load fuel onto other tankers in European ports for further journeys to Asia. 

—With assistance from Stephen Stapczynski.

Article content