Suez Canal blockage lifts LNG offers

Market: Natural gas
25/03/21

LNG sellers raised their offers further today with continued uncertainty surrounding how long transit through the Suez Canal will remain blocked and delay deliveries to Asia-Pacific.

The 400m long container vessel Ever Given ran aground in the Suez Canal at 07:40 local time (05:40 GMT) on 23 March because of a dust storm and high winds, blocking the vital waterway that links the Red Sea and the Mediterranean. Navigation on the waterway remains suspended while efforts to refloat the ship are continuing.

The blockage has resulted in a build-up of tanker traffic, with around seven LNG vessels currently lined up to pass through the canal, according to shipbrokers. Around three of those vessels are destined for Asia-Pacific and all three are scheduled to be delivered across the end of March to early April, they said.

Expectations that more LNG deliveries through the canal may be delayed and shrink the spot supply pool fuelled gains in Dutch TTF gas hub prices yesterday and lent strength to LNG offers to northeast Asia, which rose by 20-30¢/mn Btu across the board today.

The Suez Canal is a critical chokepoint for oil and gas movements. LNG vessels traverse the canal to send supplies from the Middle East and the Atlantic to Europe, the Americas and Asia-Pacific.

But buyers have mostly retreated to the market sidelines, as they expect that a clearance of the blockage could quickly lead to an easing in TTF prices and offer levels for deliveries to northeast Asia in the short term. Bids were up by a smaller margin of 10-20¢/mn Btu across the board today.

The ANEA price, the Argus assessment for spot LNG deliveries to northeast Asia, rose by around 20¢/mn Btu across the board on today on issues surrounding the impact of the blockage and a resulting rise in the Dutch TTF. The ANEA price for both halves of May yesterday was at a 38.8-42.3¢/mn Btu premium to the TTF April contract at $6.392/mn Btu on the same day.

The rise in Asian spot prices widened the inter-basin spread, which if sustained could encourage US cargoes to be shipped to Asia-Pacific. Market participants suggest that a premium of 50¢/mn Btu could be sufficient to incentivise shipments from the US to Asia-Pacific instead of Europe.

One of the three LNG carriers queueing to transit the Suez Canal is carrying a US cargo, while the other two tankers are laden with cargoes of Middle East origin, according to a shipbroker.

Some Atlantic suppliers to Asia-Pacific may also choose to reroute their cargoes towards the longer Cape of Good Hope instead of the Suez Canal if traffic remains congested. Market participants expect that will mean supplies will still be available with delays of only a few days. A shipment from the US to northeast Asia via the Cape of Good Hope takes around 45-46 days compared with 42 days through the Suez Canal.

By Joey Chua

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