Europe Pulls in More LNG as Hormuz Disruption Tightens Global Gas Market

Europe Pulls in More LNG as Hormuz Disruption Tightens Global Gas Market

Europe is increasing its purchases of liquefied natural gas (LNG) as the prolonged disruption around the Strait of Hormuz tightens global supplies ahead of the Northern Hemisphere winter.

LNG deliveries to the European Union and the United Kingdom remain about 4% below last year's levels on a 30-day moving average, according to ship-tracking data. However, volumes have risen sharply since early August, when European imports were approximately 30% below the same period a year earlier.

The increase comes as LNG flows toward Northeast Asia have declined, allowing more Atlantic cargoes to remain in European markets.

Europe Competes With Asia for Flexible LNG

Market economics are currently favoring Europe over Asia for U.S. LNG cargoes, encouraging some Atlantic shipments to stay in the region through October.

Europe is expected to absorb roughly one-quarter of global LNG supplies in September, compared with less than 19% in July, according to Kpler data.

The shift comes as LNG supplies from the Persian Gulf remain heavily disrupted. Before the conflict, the region accounted for approximately one-fifth of global LNG production, making the loss of those cargoes significant for both European and Asian buyers.

The resulting supply tightness pushed LNG prices earlier this month to their highest levels since late 2022.

With Gulf supplies constrained, Europe and Asia are increasingly competing for flexible cargoes from the United States and other producers in the Atlantic Basin.

India Emerges as Another Major Buyer

India is adding another source of demand to an already tight market.

Dry conditions have reduced hydropower generation in the country, while fertilizer producers continue to require large volumes of natural gas. Kpler estimates that Indian LNG imports will rise about 10% year-on-year in September.

Indian buyers have continued purchasing spot cargoes despite prices moving above levels at which they would normally enter the market.

That additional demand could make it more difficult for European buyers to secure flexible cargoes as winter approaches.

European Storage Below Seasonal Average

Europe entered the winter preparation period with gas inventories below the five-year seasonal average.

Storage facilities were approximately 70% full on September 23, compared with a five-year average of around 86%.

The relatively low inventory level increases the importance of continued LNG deliveries during the weeks ahead, particularly if pipeline supplies or other sources of gas remain constrained.

The situation is also encouraging European buyers to compete aggressively for available spot cargoes.

LNG Shipping Patterns Begin to Shift

The disruption is also affecting LNG shipping routes.

The LNG carrier Elisa Aquila, which initially appeared to be heading from the United States toward Europe, reversed course in the Atlantic last week and began sailing south, according to shipping data.

Such changes highlight the flexibility of the global LNG trade. Cargoes can be redirected toward whichever market offers the strongest combination of price, demand and shipping economics.

U.S. LNG exports also remain strong. Estimated flows to American export terminals reached approximately 19 billion cubic feet per day on September 27, up about 3.5% from the previous week, according to BloombergNEF data.

LNG Freight Rates Rise in Atlantic

The tighter trading environment is also being reflected in LNG tanker markets.

Pacific spot earnings for a 174,000-cubic-meter LNG carrier were approximately $31,000 per day on Friday, according to Spark Commodities.

Atlantic earnings were around $34,000 per day, representing a 15% increase from the previous session.

Higher Atlantic earnings could encourage LNG carriers to remain positioned for transatlantic and European trades as buyers compete for available cargoes.

Qatar Could Ease the Market

A potential increase in Qatari LNG exports could provide some relief.

BloombergNEF analyst Han Wei said that if Qatar is able to increase production and resume higher export volumes through the Gulf, particularly toward South Asian buyers, spot LNG prices could come under downward pressure.

However, buyers may remain cautious because any improvement could be temporary if tensions in the region escalate again.

The uncertainty is particularly important for long-distance LNG shipping, where vessel positioning and voyage commitments can be affected by changing security conditions.

Asian Prices Remain Elevated

Asian LNG prices remain relatively high amid continued demand from India and some Southeast Asian buyers.

Japan-Korea Marker futures for November delivery recently traded around $25.82 per million British thermal units, while the December contract was around $24.80.

Northwest European gas futures for October were approximately $26.51 per million British thermal units, with November around $23.97.

U.S. Gulf Coast LNG for November delivery was assessed at approximately $22.86 per million British thermal units on a free-on-board basis.

The price spread between regions will remain an important factor in determining where flexible U.S. cargoes ultimately head.

Vietnam Also Seeks Cargoes

Vietnam is adding to near-term Asian demand.

PetroVietnam Gas has been seeking an LNG cargo for delivery between October 23 and 30 at the Thi Vai terminal in southern Vietnam.

The purchase comes as Asian buyers monitor both regional demand and the availability of Atlantic LNG cargoes.

Winter Demand Keeps Pressure on the Market

For Europe, the immediate priority is rebuilding inventories before winter while maintaining sufficient supply to meet seasonal consumption.

The loss of a significant portion of Persian Gulf LNG has changed the balance of the global market, forcing buyers to compete more aggressively for flexible supplies.

As a result, the Strait of Hormuz disruption is affecting not only Middle Eastern exporters but also LNG shipping routes, vessel earnings, European storage strategies and purchasing decisions across Asia.

Unless Gulf LNG exports recover materially, competition between Europe and Asian buyers is likely to remain a major factor in global LNG pricing and shipping markets heading into the winter season.