The LNG floating storage incentive for the coming winter is much smaller compared with previous years, because available capacity at EU storage sites — unreserved until now — could guarantee storage flexibility until the winter.
Shippers may decide to delay deliveries by no more than 14 days from October into November, based on forward delivered prices and freight rates, assuming a two-stroke carrier with a boil-off rate of 0.08pc/d. The incentive to delay deliveries and use floating LNG cargoes as short-term storage is much smaller than in the fourth quarters of 2022 and 2023. And there was a stronger floating incentive at this time last year.
The EU is this year not expected to fill its underground storage facilities as high as in recent winters. Full storage sites prompted use of floating LNG storage in the winters of 2022-23 and 2023-24. And LNG supply in the Atlantic basin is expected to increase this winter compared with previous years.
A swathe of unbooked EU storage capacity — particularly in Germany — limits Europe's ability to absorb gas and LNG in summer months, at times weighing down prompt prices and deepening the inter-month contango at European hubs from spot delivery to the coming winter. Storage operators have been able to sell some storage capacity as the winter-summer price spread has strengthened — the balance-of-month contract at the German THE hub closed at a €2.50/MWh discount to the corresponding winter contract the day before storage operator SEFE's auction for 5TWh of capacity at its 45TWh Rehden site on 8 July.
But sales of storage capacity led capacity holders to quickly buy gas on a prompt basis and sell on a forward basis into winter to lock in the spread. After SEFE sold 3.9TWh at Rehden on 8 July, the spread narrowed to €2.04/MWh by market close that same day — or a 14-day floating storage incentive from October to November, from an 18-day incentive the previous day. Hedging related to storage booking ultimately reduced the winter-summer spread and limited the price incentive for floating LNG storage to increase further.
Germany had 82.9TWh of unreserved storage capacity as of the start of July, although not all of this can be utilised ahead of winter because of limited storage capacity at some slow-cycling storage sites. And not all capacity is selling since the contango narrowed, with SEFE not selling any capacity at Rehden in auctions on 15 July. Market participants may prefer the option of underground storage capacity within the limit of short-term injection capacity, before price incentives emerge again for floating LNG across delivery windows.

