EU Import Demand Potentially Strong until 2030

Europe’s demand for gas imports has the potential to remain strong until at least 2030 but could tail off sharply thereafter as governments continue to decarbonise the power sector, delegates heard at this year’s Flame conference in Amsterdam.

Jonathan Stern of the Oxford Institute of Energy Studies told NGW on the sidelines that if governments stuck to the 2 deg C global warming rise limit, then demand will be “significantly less than now.” But he said gas demand in the European Union could be the same as now until 2030. The crisis is in domestic production, which will be a lot less.

As European gas production falls, especially swing production in the Netherlands, the need for imports will also grow. A further cut in Groningen gas field output from this October, and the closure of Rough for new injections this season mean that storage injection elsewhere will probably be higher than otherwise. This is expected to see a rise in LNG deliveries, which have started to arrive in the European Union despite low gas prices. The future of Rough is still to be decided, closure being a possibility owing to the cost of rehabilitation.

There have been good reasons for experts being mistaken about last year being the start of major LNG cargo arrivals. “Some LNG last year went to places we were not expecting it to go to, and there was less LNG from places that were expected to produce it,” he said.

Even though oil indexation is formally excluded from nearly all long-term contracts in parts of Europe, nevertheless the oil price affects spot gas prices.

According to Gazprom Export’s Sergei Komlev (pictured, below), the low price is not caused by over-supply of gas but by the low oil price. His presentation showed a very close correlation between the Brent crude price of nine months ago – a key element of the pricing clause of an old-fashioned European long-term supply contract – and the prompt price at Europe’s most liquid hub, the Dutch title transfer facility.

(Credit: Gazprom)

Cutting Europe's storage excess

However there is already a little too much storage in continental Europe, according to Innogy’s Michael Kohl. At least three plants have announced closure from this April as the necessary upgrades would cost more than the likely earnings in today's market:

The definite closures are Uniper’s Krummhorn salt cavern, OMV’s depleted gas field at Thann and an aquifer under Berlin and there is also a question mark over VNG’s Kirchheiligen storage. This totals 1bn m³ of working gas, but the German utility’s storage manager told NGW that another 10-15 such closures were needed to bring storage back into balance, or another 4-6bn m³, of the total 60bn m³. Rough was, with around 4bn m³ of working gas, Europe's largest storage facility and used for balancing the UK market in winter.

Stern told NGW that the UK was looking very vulnerable to a gas supply shock, but that he had not bothered pronouncing on this as nobody ever seemed to worry very much about it. “There won’t be anything about this until September at the earliest,” he said. “But if there were an actual physical disruption, we would have to pull in emergency gas at the same time when there is a lot of competition for it.” This would include northern-hemisphere Japan, where only three nuclear plants are back on line.

William Powell