The closure of French LNG terminals due to industrial action has created a prompt supply glut, as unworkable arbitrage economics and shipping logistics confine volumes to the Atlantic.
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The drawn-out strike action, affecting up to four LNG import terminals, has forced sellers of cargoes destined for France to find alternative customers.
Market sources said that up to 17 cargoes had been diverted from France as of March 24, most of which arriving in Spain and the UK. Others have found homes in terminals across Europe, stretching from Germany to Turkey.
Tepid demand in both the Pacific and Atlantic basins has rendered the arbitrage economics unfeasible, with little appetite in the East pulling on the additional cargoes.
Currently, the Japan/Korean market (JKM) is at a 62.2 cents/MMBtu premium to Northwest Europe, as of March 27. By comparison, the cost of shipping from Spain to Taiwan was assessed at $1.83/MMBtu.
Some sources added that current shipping conditions would also prevent any flows east, even if sentiment in the Pacific was to become more bullish.
"It would be very hard to divert to Asia on such short notice because the impact on the shipping would be enormous," a Europe-based LNG trader said.
As a result, pricing pressure continues in Europe, amid good supply and lacking an obvious hotspot for a demand spike.
The continuing impact on LNG supply hinges on how long industrial action persists. French trade unions are set to decide March 28 whether to extend strike action at France's three of France's LNG import terminals -- Montoir-de-Bretagne, Fos Cavaou and Fos Tonkin -- a spokesperson for operator Elengy said March 27. Meanwhile, the Dunkerque LNG terminal remains partially operational but the gas sendout capacity is reduced.
A protected closure could create an additional build in cargoes, although sources said the marginal US volumes are likely to head to the Pacific rather than the Atlantic.
The trajectory of LNG discounts to the benchmark Dutch TTF natural gas hub are also unclear, as a lack of LNG cargoes in France will likely support pipeline gas demand and widen the differentials between water-borne and overland gas supplies.
However, either an end to the industrial action, or a reduction in Europe-bound exports at the source could allow some narrowing, as the current overhang abates, and the market rebalances.
"If we continue to see more successful diversions, the discount to TTF may narrow as the excess cargoes get mopped up," said a second Europe-based LNG trader.