The LNG frenzy is being fueled by a combination of crises which have struck Europe all at once.
As the war in Ukraine rages on, Russia has slowly reduced exports of gas to the Continent after Western sanctions were imposed.
Meanwhile, France’s fleet of nuclear reactors are laid low by technical problems and the reservoirs powering Norway’s hydroelectric plants are running low – creating even greater demand for gas to burn in power stations.
With Europe’s native gas producers going at pretty much full pelt, it means LNG from abroad is needed to fill the void.
Alex Froley, an LNG analyst at Independent Commodity Intelligence Services, estimates that a typical tanker with capacity for 150,000 cubic metres of supercooled gas could now fetch around £190m for its cargo.
Nearly £150m of this is likely to be profit.
“These are all-time highs for global spot gas prices, far above anything we’ve seen in the last 20 years,” he adds.
“We’ve seen some ships waiting offshore in Europe for a few weeks before delivering, rather than going straight in.
“They may be hoping to find slots to deliver into the highest priced markets, like the Netherlands, rather than wanting to deliver immediately into the UK or Spain, where prices are lower.”
The result of sky-high prices on European spot markets, where gas was selling for €292 per megawatt hour on Wednesday compared to just €45 a year earlier, has been a wave of frantic horse trading.
LNG is normally traded on long-term contracts at prices that are typically much lower than the day-ahead rates, particularly in the current environment.
But the huge difference between these agreed fees and current prices has in some cases prompted traders and suppliers to simply pay the break fee so they can sell their cargoes to the highest bidder, says Investec’s Piper.
In other cases, traders have negotiated lucrative deals with the original buyer to sell gas they are owed but do not necessarily need right now and pocket the difference – with the traders also getting a slice of the action.
“Even by breaking the contract you can still make a lot of money – and that is what these traders are doing,” Piper adds.
It has put the holders of long-term contracts in a very favourable position.
“If you have bought this LNG on the cheap, you are the one now making the money,” says Laurent Segalen, an energy investment banker and host of the Redefining Energy podcast.
“And the prices being paid are beyond anyone’s understanding. It’s insane.”
Jean-Christian Heintz, a former LNG trader who now works as a consultant, says: “It’s a time when you are very happy to have long term assets.”
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