TTF gas soars 7% as LNG carriers divert away from Red Sea
Quantum Commodity Intelligence – European natural gas prices spiked sharply Monday after a number of LNG tankers scheduled to transit the Red Sea were diverted away following the latest spate of tanker attacks in the region.
Benchmark TTF futures for Jan24 surged 7% versus pre-weekend levels to stand at around €35.50/MWh in late-afternoon European trading, stalling what has been largely an eight-week decline amid record inventories and low seasonal offtakes.
However, analysts said gains had been moderated by the overhang of natural gas in Europe but warned any LNG supply disruption leaves Europe vulnerable to an extended cold snap over winter, given the loss of most Russian pipeline gas for this winter.
At least three LNG carriers have diverted away from the Bab-el-Mandeb Strait, located at the southern end of the Red Sea, according to Argus ship tracking, including two vessels sailing for South Korea and one empty tanker returning from Asia.
A fresh spate of attacks could have seen up to six vessels targeted on Monday, with shipping traffic increasingly needing a naval escort to provide any kind of protection.
In the 2010s, when commercial shipping was targeted by pirates in the region, vessels would employ armed guards and regularly travel in convey, but analysts say such measures offer little protection against drone and missile attacks.
Re-routing shipping traffic around Africa's Cape of Good Hope would appear to be the only foolproof option, a route that adds around 40% to the sailing distance, increasing journey times from around 19 days to 31 days, depending on vessel speed. Operators may also have little choice amid reports that some crews are refusing to transit through the Bab-el-Mandeb Strait.
An effective closure of the Red Sea to LNG traffic would lead to major logistical problems, including significant additions to journey times and an increase in shipping costs.
While LNG has an excellent safety record at sea, light-molecule cargoes, including LNG, LPG and naphtha, are highly flammable, potentially singling them out for missile strikes.
LNG flows
The US Energy Information Administration (EIA) earlier this month said the Red Sea plays host to around 8% of global LNG shipments, although flows have eased from the peaks after Russian volumes from Asia were re-routed from Western destinations.
LNG flows through the Suez Canal in both directions reached a combined peak in 2021 and 2022 of 4.5 billion cubic feet per day (Bcf/d) before total flows declined in the first half of 2023 to 4.1 Bcf/d, noted the IEA.
Southbound LNG flows more than doubled from 2020 to 2021, mainly driven by growing exports from the US and Egypt heading to Asia, but subsequently declined as southbound LNG volumes via the Suez Canal declined as US and Egyptian LNG exports both headed to Europe over Asia, replacing some of the natural gas exports that Russia historically sent to Europe.
The IEA added that most of the variation in northbound volumes reflects changes in Qatar's exports to Europe (via the Suez Canal) compared with Asia. Qatar has also sent increased LNG volumes to Europe since 2022 to replace some volumes from Russia, increasing northbound flows.
Asian LNG prices were also edging higher Monday, having closed Friday at around four-month lows of $11.77/mmBtu for the benchmark Japan-Korea-Marker (JKM) Feb24 contract.
Thin winter demand and high inventories had seen prices slump, with LNG cargoes reportedly piling up at sea, with the volume on the water for more than 20 days jumping to its highest level since 2017.
