The “top-up” has begun. The reduction of Russian gas flows to Europe is spurring the continent’s quest to “top-up” on fuel to get through the winter. Europe’s summer months are colloquially known as the “filling season.” But Russia’s invasion of Ukraine has thrown a monkey wrench into these plans. To put the Russian dependence into perspective, consider the following:

Share of Russian natural-gas imports (2020)

1. Czech Republic – 100%
2. Hungary – 95%
3. Germany – 65%
4. Poland – 55%
5. Italy – 43%
6. European Union Average – 39%
7. Netherlands – 30%
8. France – 17%
9. Spain – 10%
10. Portugal – 10%

While the continent is scrambling, gridlock is preventing dozens of ships with natural gas from berthing. The waits are due in large part to only a handful of terminals equipped with the personnel and expertise to receive imported gas. Much of the gas is now arriving from the US and Qatar and delivery volumes have boomed in recent months. To make matters worse, storage facilities are at near capacity. Enagás SA from Spain expects LNG imports to continue facing delays over the coming months due to very high storage levels. 

Oddly, the pileup reflects European success in securing the extra gas they’ll need for the winter months. Yet, the infrastructure has not kept pace meaning ships with enough gas to heat a million homes per month are serving as offshore gas storage facilities for the time being. Gas prices have gone down due to surging imports and this is providing an incentive for suppliers to keep their gas from berthing with the hope that prices eventually rise again. 

Once liquified natural gas (LNG) makes it to a ship it is supercooled. However, to turn it back into its gaseous state, the tankers need to eventually dock at re-gasification terminals. Spain counts on one-third of Europe’s re-gasification capacity. Italy and Germany are constructing new terminals but that will take some time. Many ships have chosen the Gulf of Cadiz to wait and decide when and where they’ll unload. It is a strategic point that allows for multiple, potential destinations. 

The waiting game could turn south for Europe should prices surge in Asia. This would provoke traders to take their gas to the highest buyer. For now, demand in Asia is stagnant, but should China ease its zero Covid policy the scenario could shift dramatically. Winter weather has not kicked in yet so demand is nearly the same as it was in August. But it’s clear traders have the upper hand at the moment.