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Dozens of LNG-laden vessels line up on European shores unable to unload

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LONDON/MADRID, Oct 17 (Reuters) – Dozens of ships carrying liquefied natural gas (LNG) plying off the coast of Spain can find docks to unload, prompting grid operators to warn the country that they may need to suspend loading to deal with the problem. this is the “exceptional situation”.

Europe faces an energy supply shortage as Russia gradually cuts off gas flow after the West imposed sanctions in response to Russia’s invasion of Ukraine in late February.

The region has had to find alternative sources, including LNG, but the arrival of multiple cargoes of supercooled fuel has exposed Europe’s lack of “regasification” capacity, as plants that regas sea-transported fuel are operating at the maximum limit.

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If the backlog is not cleared soon, these ships may begin to seek alternative ports outside of Europe to unload their cargo.

More than 35 vessels loaded with LNG are drifting off the coast of Spain and around the Mediterranean, with at least eight vessels anchored only off the Gulf of Cadiz, traders, analysts and sources at LNG terminals said on Monday.

Congestion at Spain’s LNG terminals

An industry source said Spain only offered six slots at its regasification terminals for cargo this week, with less than a fifth of the number of ships lining up on its shores. The country has a total of six terminals.

Spain’s national gas grid operator, Enagas, said in a statement released late Monday, titled an “exceptional operational status statement”, that it may have to refuse to dump LNG due to excess capacity at its terminals.

He added that high occupancy levels at the country’s regasification plants are expected to continue until at least the first week of November.

A source familiar with the situation said there are also LNG vessels docked near other European countries, which could mean waiting for dozens more.

“Floating storage levels in LNG transport are always high, with a little over 2.5 million tons attached to floating storage,” said Oystein Kalleklev, CEO of shipowner FLEX LNG Management.

The lack of regasification plants or pipelines connecting countries with these plants to other European markets means that LNG floating in the open sea cannot be used. “We’ve seen a lot of cargo waiting offshore in southern Spain or returning in the Mediterranean, as well as some cargo waiting from the UK,” said Alex Froley, LNG analyst at data intelligence firm ICIS.

While the European economy slowed down, low industrial demand and lower-than-expected domestic consumption due to unseasonal hot weather in Spain exacerbated the bottlenecks.

Another reason for the congestion is that prices are expected to rise as winter approaches and heating demand increases, so some ships expect to sell their cargo at a higher price, which could offset the extra shipping costs caused by sitting at sea, ICIS’s Froley said.

The price of an LNG cargo delivered in late November or early December is approximately $2/mmBtu higher than current prices.

“This strategy works in part because some companies have flexibility in their shipping portfolios due to cutbacks such as the closure of the US Freeport facility,” Froley said.

He was talking about the second largest LNG exporter in the US, which ceased operations after an explosion and fire in June.

“If more cargo were produced, companies wouldn’t be able to keep their ships waiting for so long,” he said.

Earlier on Monday, China stopped selling LNG to foreign buyers to ensure its own supply, and more ships may head to Asia, market players say.

Spain has the largest regasification capacity in the European Union, accounting for 33% of all LNG and 44% of LNG storage capacity.

This week, the leaders of France, Germany, Spain and Portugal will meet to reach an agreement on the MidCat pipeline, which could transport Spanish gas – and future hydrogen – to Central Europe.

MidCat would create a third gas link between France and Spain, whose main backers Madrid, Lisbon and, more recently, Berlin, say it will help Europe reduce its dependence on Russian gas.

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reporting by Belén Carreño and Marwa Rashad; Written by Charlie Devereux and Marwa Rashad; Editing by Jane Merriman and Grant McCool

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