The average API density of European crude imports continues to rise in early 2023 as imports from the US remain robust, which has been keeping demand for heavier grades high, with Europe increasingly leaning towards Latin America for these barrels.
The Netherlands’ plans to boost its LNG import capacity by a quarter to 30 bn m3 a year by 2026 could allow the country to fully replace the 9 bn m3 of Russian gas it imported prior to Russia’s export cuts to the EU. Like several other EU countries, the Netherlands is turning to LNG to help ensure its security of gas supply while also implementing measures to cut gas demand in the short and long term.
We have repeatedly called for a sustained opening of the transatlantic gasoline arbitrage in order to help ease the tightness seen in the US market. But is our freight-adjusted arb incentive the best measure to look at? By re-calculating the direct blending of ethanol into margins and arb estimates for a refiner producing and distributing E10, we find that not only are there gains to be made in terms of profitability but also that arbitrage conditions are already much more favorable than those for regular gasoline.
The European Union is on track to jointly buy around 10 bn m3 of gas this year, or roughly three-quarters of its mandatory target. The bloc agreed to start joint gas and LNG purchases in April to help ensure stocks are refilled ahead of next winter when supply is expected to remain tight. The EU is also contemplating expanding its voluntary 15% cut in demand until next year as another measure to tackle the current energy crisis.
Three out of the four LNG import terminals in France are offline for a week amid a national strike affecting multiple sectors in the country. The terminals affected represent over 60% of the French LNG import capacity. LNG is essential for the security of supply of France and its regional neighbors.
Germany’s third LNG import terminal completed its first commercial delivery on Feb. 16. The country is fast-tracking the launch of several floating terminals between this winter and the next to help replace the lost Russian pipeline supplies as fast as possible but these new capacities alone will not be enough.
The Netherlands’ gas transmission system operator Gasunie has advised the Dutch government to keep Groningen, the EU’s largest gas field, open at minimal production levels until further notice instead of closing it down in October as currently planned. This is to help mitigate security of supply risks as the country’s additional LNG import capacities have not yet replaced all the lost Russian pipeline supplies.
With the looming physical tightness of ULSD in Europe, refiners in the wider area are already starting to look at some creative refining to try and capitalize on the attractive economics. The upcoming length in off-spec diesel might just offer some respite to Europe after it goes through the process of phasing out imports from Russia, once the embargo kicks in.
Europe remains highly dependent on Russian clean product exports, particularly gasoil/diesel. As we head towards the embargo, it was expected that reliance had fallen, not risen. The ban will, however, bring about a change in global trade patterns for both middle and light distillates.