Liquefied natural gas (LNG) prices in the Eastern Mediterranean are declining significantly, driven by low demand and an oversupply in the market. Recent estimates from S&P Global Commodity Insights indicate that December LNG prices in the region have dropped to $13.728 per million British thermal units (MMBtu). This price represents a 13-cent differential compared to the Dutch TTF hub, a rare situation that benefits Europe. The decline reflects a decrease in the usual price premiums for LNG, as demand in the region has weakened under current market conditions.
This decline is largely due to the high gas reserves in various European countries, including Italy and Croatia. According to the latest Aggregated Gas Storage Inventory data, Italy’s storage is at 98.16%, while Croatia’s is at 91.10%. These levels are similar to those recorded last year. High storage capacity reduces the need for additional LNG shipments, further driving down prices in the region.
Weak Demand and Reduced Shipping Costs
In addition to low demand, lower shipping costs to the Eastern Mediterranean are contributing to the price drop. Some suppliers with extra shipping capacity are offering discounted cargoes for December, which lowers regional price premiums compared to major European gas hubs. This trend is amplified by mild weather, which lessens heating needs and, consequently, the demand for natural gas.
For instance, prices at Italy’s PSV (Punto di Scambio Virtuale) hub have also decreased compared to Europe’s key hubs. This change narrows the usual price spread and indicates a shift in buyer interest from LNG to more cost-effective pipeline options.
Weather and Gas Flow Effects
Unexpectedly warm temperatures in Europe are significantly affecting demand. If the mild weather continues, a sharp rise in LNG prices in the Eastern Mediterranean seems unlikely. However, a sudden cold snap could temporarily boost the demand for natural gas. An Italy-based trader noted, “Current weather heavily influences demand. If winter stays mild, there will be little upward pressure. But colder weather or supply disruptions could change this.”
Geopolitical Factors and Winter Outlook
Geopolitical issues are also impacting the Eastern Mediterranean LNG market, particularly changes in Egypt, which has become a net importer of LNG. This shift affects regional supply, especially with transit challenges in the Suez Canal and reduced gas volumes through Ukraine. These factors increase uncertainty and contribute to price volatility.
With lower LNG supplies coming from North Africa and the Middle East, some analysts predict a potential price rebound if complications arise. Elizabeth Kunle, an analyst at Commodity Insights, stated, “Egypt’s new status as a net importer is significant this winter, especially as the global LNG market faces challenges due to delays in liquefaction capacity.”
The winter outlook remains uncertain, depending on both weather and supply conditions. Market participants are closely watching European demand, which may change based on weather patterns and possible supply disruptions as early 2025 approaches.
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