DES Northwest Europe LNG price premium versus Mediterranean widens amid Spanish oversupply

The delivered price of LNG into Northwest Europe has widened to a record premium to Mediterranean cargoes based on market intelligence about an oversupply of gas in Spain.

Demand there has been soft due to mild temperatures and high wind generation, traders said.

Month to date, some 50 Bcf of LNG has been delivered to Spain. Combined with another 45 Bcf of LNG volumes expected to be delivered by the end of the March, the total of 95 Bcf would exceed the 93 Bcf received in February and the 87 Bcf imported in January, S&P Global Commodity Insights vessel-tracking data showed.

Spanish gas hub PVB remains weak relative to the Dutch TTF gas hub, though the discount has narrowed recently. Traders ascribe as the reason for the narrowing TTF falling off faster as European markets continue to be volatile amid Russia's ongoing invasion of Ukraine. Markets with low dependence on Russian gas and abundant LNG regasification capacity, like Spain, have emerged as discount hubs as depressed Russian pipeline flows to Northwest Europe, alongside concerns about further potential disruption, maintain a premium for cargoes delivered to the region versus the Mediterranean, according to an S&P Global analysis.

"Spain is recovering but a dog still," said an Atlantic-based trader.

For the second day in a row March 22, the Platts DES Northwest Europe Marker was assessed at a 35 cents/MMBtu premium to the DES Mediterranean Marker. That's the widest premium for NWE versus Med on record. Traders reported wide bid/offer spreads for cargoes seeking to land in Europe and the Med, though they agree the Med is a discount versus NWE.

"I think steady flow from Africa, good weather and demand disruption due to high price and less engage to Russia" is the main reason, said a second Atlantic-based trader.

Yamal LNG supplies that end up in Spain are often delivered first to France on board the Arc 7 LNG carriers, reloaded and then taken to their final destination. That can make it difficult to track exactly how much Russian LNG continues to be delivered to Spain.

Even so, traders said they believed the main driver for the Med discount versus Northwest Europe was oversupply in general.

"I think it is mainly due to PVB having enough gas, not just Russian but all other LNG cargoes delivering in Spain," a third Atlantic-based trader said.

Shipping costs

Shipping distance most recently has been less of a factor in the fundamentals between Northwest Europe and the Med.

The LNG freight costs for a tri-fuel diesel-electric ship loaded in the US Gulf Coast see small differences when it comes to choosing on whether to discharge either in Northwest Europe or the Mediterranean.

As data from S&P Global shows, the cost to ship LNG on March 21 from the US Gulf Coast to Northwest Europe stood at $1.48/MMBtu. This reflects cost for a typical round-trip voyage of 24 days duration back to loading port. During the same period, the cost to ship LNG on board a TFDE ship loaded in the US Gulf with discharge in the Med was assessed at $1.50/MMBtu, a difference of 1.35%, which is mainly attributed to the higher port costs in Spain.

The day rates for TFDE ships loading in the Atlantic basin on March 22 were steady day over day at $49,000/d, compared to $260,000/d on Dec. 1, 2021, a decrease of 81%. During the same period and when the spot rates for these types of ships within the Atlantic were extremely high, the two freight route costs from US Gulf to Northwest Europe and US Gulf to the Med again carried small differentials at $3.16/MMBtu and $3.19/MMBtu, respectively.