Global Industry: Europe set for ‘genuine’ LNG demand in coming years

Europe is again set to absorb surplus LNG supply over the next few years, but from 2021 will likely need the LNG to offset declining domestic production, industry officials said Monday.

with its tradable hubs and well-established gas infrastructure — is often considered the market of last resort for an oversupply of global LNG, with the recent spike in LNG imports on weak Asian demand in recent months evidence of that role.

However, Europe is likely to need LNG to be able to supply customers early in the next decade.

“Europe will not just play the balancing role,” head of LNG at Austria’s OMV Elena Sidorochkina said at the European Gas Conference in Vienna.

“Europe will become more dependent on LNG,” she said.

Vice president for gas and LNG at consultancy Wood Mackenzie Massimo di Odoardo agreed the LNG dynamics in Europe would change in the next decade.

“Europe might well be the backstop in the next few years, but after 2020 it will have genuine LNG demand,” di Odoardo said.

Di Odoardo also said European utilities should “step up” their LNG import positions so they don’t lose market share to portfolio players in the coming years.

ASIAN GROWTH

The growth in global LNG supply in the next few years — mostly from the US — could outpace demand growth in Asia, officials at the Vienna conference agreed.

“We may see LNG flows into Europe grow faster this year than in previous years,” vice president for strategy at US LNG pioneer Cheniere Energy Andrew Walker said.

Global LNG supply is set for a major boost in 2019-20, with up to 70 million mt of additional supply coming to market.

Director of global gas analysis at the UK’s Centrica Gautam Mukherjee said it was likely that the pattern from the fourth quarter of 2018 — Asian demand lagging supply growth — would be repeated in the coming years.

“Europe will play an even more important role in absorbing supply,” he said.

From 2021, Europe may need extra gas given the decline in domestic production — from the Netherlands, the UK and Norway.

According to WoodMac, an additional 70 Bcm of supply to Europe could be needed by 2025, with LNG set to compete with Russia to provide the additional volumes.

WoodMac sees some 65 million mt of new LNG supply that could take final investment decision this year — a record high.

This includes projects in the US, including the Qatar Petroleum-backed Golden Pass project, the Arctic LNG-2 project in Russia and LNG export projects in Mozambique.

Walker said the US LNG sector would remain competitive in the future, adding that it would be “many, many years” before the US Henry Hub gas price would remain above $3/MMBtu for a prolonged period.

He said the US would become the world’s biggest LNG exporter by 2023, even taking Qatar’s LNG expansion into account.

LNG LIQUIDITY

Walker said the JKM swaps market had grown “hugely” in recent years, peaking at the equivalent of 70 cargoes traded a month — or 10% of total trade.

Still, he said, LNG was “very far from becoming a true commoditized item,” adding that a new wave of US flexible LNG projects could be the key to adding liquidity.

He also said long-term contracts would remain key to the LNG market going forward, pointing to recent long-term deals between Cheniere and the likes of global trader Vitol.

The head of LNG trading at Total, Patrick Dugas, agreed that long-term contracts had a role to play, but questioned the definition of long-term contracts.

He said that while long-term contracts were now considered to be 10-15 years in length, they included price reviews every five years at the most.

In essence, this meant that the contract was really only a five-year contract.

Nonetheless, long-term contracts are still needed to ensure financing of LNG production projects in the future, with oil indexation remaining a key component, London Energy Consulting chief David Cox said.

–Stuart Elliott, stuart.elliott@spglobal.com

–Edited by Jonathan Dart, newsdesk@spglobal.com