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FREIGHT
LNG SHIPPING:
THE ELEMENTS THAT
A YEAR OF WAR LEND SUPPORT TO A
IN UKRAINE:
THE EFFECTS BULLISH OUTLOOK
ON SEABORNE TRADE
The invasion of Ukraine by Russian Fed- line’s max capacity. To put this in LNG
eration forces almost 12 months ago shipping terms and to translate it to
catalysed a paradigm shift in the global demand for new LNG cargoes, 55bcm
energy markets. The need to diversify per annum is roughly 40 million tonnes
away from Russian exports was acutely of LNG per annum (mtpa). 40mtpa of
felt across commodities but arguably supply roughly equals 500 LNG cargoes
most of all in energy, especially LNG. of a 174,000cbm parcel size.
Prior to the invasion, Russian pipe- The obvious source for this incremental
line gas accounted for almost 40% of supply has been LNG from the USA.
Europe’s natural gas needs, accord- Unlike Sale and Purchase Agreements
ing to Eurostat. As the war escalated (SPAs) of the past, which had destination
and the prospect of a quick resolution restriction clauses, US LNG volumes are
to the conflict diminished, it became purchased under contracts which allow
apparent to European leaders that off-takers to sell their cargoes to the
this heavy reliance would have to be highest value market. Reflective of the
It has been a year since President Putin materially reduced as quickly as pos- flexible nature of US volumes is the
decided to invade Ukraine, thus disrupt- sible. While European utilities were swift way in which the percentage of US
ing the long-standing peace in Europe scrambling to secure Floating Storage cargoes delivered to Europe increased
and causing an unprecedented human- and Regasification Units, on 26th Sep- following the invasion. Indicatively, in
itarian crisis. tember 2022, Nord Stream I – a major cal2021, 34% of US LNG cargoes were
Western powers reacted immediately, pipeline transporting Russian gas to delivered to Europe versus 69% in
imposing severe sanctions on Russian Europe – was sabotaged. This previ- cal2022. More specifically, in Q4 2022,
cargoes and vessels, which are still in ously unthinkable event continued to 72% of US cargoes went to Europe
place today. In the following pages, exert upward pressure on European versus 48% in Q4 2021.
shipping market analysts highlight the index prices, keeping them high above At the end of Q3 2022, there was a nar-
changes that have taken place in the historical levels. The TTF front-month rative that suggested that with Europe
freight markets following the reshuffling index hit $58.828/MMBtu on 28th Sep- pulling the bulk of US LNG cargoes,
of trade flows and the reshaping of the tember 2022, more than doubling from we would witness shorter tonne-mile
seaborne transport map. the $26.92/MMBtu recorded exactly a demand and, therefore, increased vessel
year before, as European nations raced availability. However, that did not mate-
against time to fill up natural gas stor- rialise. A mild winter and healthy natural
gas storages levels combined with the
ages before the winter. Although Russia
MARKETS by Phillip Tripodakis, Nord Stream I, losing it entirely meant cargoes eventually led physical deliver-
had already limited exports through the
continuous pull of a large number of
ies into the European grid to trade at
Europe’s potential natural gas supply
significant discounts to the TTF index.
was irreversibly reduced by 55 billion
Director, SSY LNG
cubic feet per annum (bcm), the pipe-
This discount steepened in the front
Simpson Spence Young
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