RE: Geez It's Quiet Today29 Oct 2022 16:07
There's a certain amount of BS that needs clearing up here.
If you read those press articles at face value, you may believe that the EU has solved their gas supply chain crisis by shipping in LNG and being cut off from Russian gas is no longer a problem for them.
However, do not take this at face value as it's essentially propaganda (the West does propaganda too).
It's important to clarify that the spot delivery price is different than the consumer sales price or long term (contracted) price for the same gas. Reason being, if you do not have the capacity to process the LNG gas that's waiting in ships bobbing in the ocean then you have a short-term delivery cost crisis.
The knock-on effects of a short-term delivery cost crisis is the short-term delivery spot price drops to zero or even negative in some cases (because the costs of having LNG sitting in these $100 billion specialized tankers for weeks/months on end soon mounts up).
The cost of this temporary storage has to be paid for out of the value of the gas that's waiting to be processed – so the short-term spot prices can even briefly go negative if the costs incurred are more than the price of the cargo they're carrying – but this doesn't happen for long – The temporary costs soon get pushed on and the supply chain always adjusts itself back to profitability.
A similar thing happened to oil in 2020. Whilst people were locked in their homes, there was nowhere to store the oil that was continuing to come into the country that would otherwise go to petrol stations and into people's vehicles, but instead, had to sit in storage. Spot delivery price for oil briefly went negative for 2 days before then going on an epic 2 year bull run to $115 soon after. Now oil sits at around $89 which is still +80% higher than pre-pandemic levels.
Costs always get recouped eventually.
EU gas spot prices “for delivery within an hour” dipped below €0 on Monday because the EU has no spare capacity to process this LNG that's waiting in ships, for they are already running at maximum capacity. So the short-term delivery gas price has to absorb all of that extra cost until the ships are free of cargo.
*Costs eat into price. *More time on ship *More of the price gets absorbed by the ship in temporary storage fees *Lower the short-term DELIVERY price you get for the gas (temporary).
Zoom out a bit and European natural gas futures (longer-term pricing) are 126% above where they were last October ($100 per megawatt hour) and they are due to go higher still, for the capacity of the EU LNG processing sites is still tiny and will take circa 5-7 years to build up to the extent whereby they are able to process the amounts of gas the EU was previously getting from Russia.
Once the waiting ships sitting in the ocean have had their LNG processed, they will only return again when the very limited European LNG re-gasification plants have capacity for them to offload at a profit.
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