Lack of infrastructure is causing new headaches for Europe in its hunt for LNG to replace Russian gas it had become overly dependent upon. For example, there are not enough regasification facilities and pipelines for ships to unload their LNG as they await their turn circling off the coast of Spain, so they may need to seek other, non-European markets. On October 17, China stopped selling LNG to foreign buyers to ensure its own supply, which could push more LNG vessels to head to Asia. Japan is moving aggressively to shore up supplies with an eye towards defending their economy against shortages and skyrocketing prices. Meanwhile, LNG tanker rates are reaching historic highs as demand has increased. Europe has imported 192 million cubic meters of LNG so far in 2022 — 25 percent more than it imported in the whole of 2021.
There are more than 35 LNG vessels drifting off Spain and around the Mediterranean, with at least eight vessels anchored off the Bay of Cadiz alone. One of the ships — an LNG tanker with the capacity to carry 174,000 billion cubic meters of fuel — has been waiting in the bay for about 33 days. Spain has six slots at its six regasification terminals available for cargoes the week of October 17–—less than a fifth of the number of vessels queuing off its coasts. Spain’s national gas grid operator may need to reject unloading of the LNG due to overcapacity at its terminals because there was a “mismatch” between expected demand and supply. The high occupation levels at Spain’s regasification plants are expected to remain at least until the first week of November. Spain has the biggest regasification capacity in the European Union, accounting for 33 percent of all LNG and 44 percent of LNG storage capacity. Spain’s gas tanks are 80 percent full, on average, close to their technical limit.
There are also LNG vessels anchored near other European countries, which could mean dozens more are waiting. And, floating storage levels at slightly more than 2.5 million metric tons are at an all-time high. However, these facilities have limited ability to help the crisis because of the shortage of regasification plants and pipelines connecting countries that have regasification facilities to other European markets.
The bottlenecks in regasification facilities and pipeline capacity are compounded by lower industrial demand as Europe’s economy slows as well as lower-than-expected domestic consumption in Spain due to unseasonably warm weather. Congestion of LNG vessels also is occurring due to higher expected prices as winter approaches and heating demand increases, meaning some ships are waiting to sell their cargoes at a higher price that can offset the extra shipping costs incurred by sitting offshore. The price of an LNG cargo delivered in late November or early December is around $2 per million Btu higher than current prices.
The leaders of France, Germany, Spain and Portugal are scheduled to meet to try to reach an agreement on the MidCat pipeline that could carry Spanish gas – and in the future hydrogen – to central Europe. MidCat would create a third gas connection between France and Spain, which would help Europe reduce its Russian gas reliance. Europe is facing an energy supply crisis as Russia has progressively cut natural gas pipeline flows after the West imposed sanctions in response to Russia’s invasion of Ukraine in late February.
Infrastructure Is a Problem for the United States Too
From LNG gasification terminals to pipelines to move natural gas or oil, the United States is being restricted by the Biden Administration and legal confrontations from environmentalists to build the necessary infrastructure to get American energy to homes and businesses. The lack of infrastructure increases prices that consumers must pay for the energy they need to heat their homes, use appliances or drive their vehicles to work or school. Environmental groups oppose natural gas as they do all carbon-based fuels.
Lack of natural gas pipeline infrastructure is particularly an issue in the Northeast, where pipelines to bring natural gas from Pennsylvania to New England and New York have been stopped by either the state or local governments or environmentalists. Most Americans heat their homes with natural gas.
In New England, where more people burn distillate fuel for heating than anywhere else in the country, stockpiles are less than a third of typical levels for this time of year. Because of the Jones Act, only U.S. ships with U.S. workers can bring U.S. fuels to U.S. ports. To ease the New England shortage, several vessels carrying around 1 million barrels of diesel are expected in New York after being diverted from their original destinations in Europe. The United States has just 25 days of diesel supply–—the lowest since 2008. As a result, wholesale diesel prices in the spot market of New York harbor soared to more than $200 per barrel. That spiraling price will also hurt trucking and food prices for Americans, while the distillate shortage will also put pressure on airlines and air travel.
Conclusion
Europe is importing large volumes of liquefied natural gas to stock up ahead of an expected cold winter as Russia slows natural-gas pipeline imports to the continent in response to sanctions that the West has placed on it due to its invasion of Ukraine. But complications over storage, regasification capacity and pipelines could thwart these efforts in Europe. The continent was so reliant on Russia for energy, that it did not build sufficient regasification terminals or intercountry pipelines that would allow it to have access to other sources of energy. President Trump was criticized for urging Europe to expand their LNG capability to lessen their dependency on Russian gas. Europe also limited leases for oil and gas and banned the use of hydraulic fracturing, limiting its own energy production.
Sound familiar? A similar situation is happening in the United States under President Biden’s leadership. Leasing on Federal land is being curtailed, permitting is slow, infrastructure approvals from FERC and DOE are delayed, and court actions are in abundance. That is why Americans are faced with rising energy prices. The Russian war is just a convenient scapegoat.
