LNG to Increase Diversification and Decrease Prices despite Tightness
“The persistent tightness of LNG markets is a major concern as it limits the contribution of gas to sustainable energy security,” IEA Executive Director Maria van der Hoeven said on Thursday.
Her comments come at a time when Liquefied Natural Gas (LNG) is gaining ground in Europe in the light of new plants under construction and new mechanisms to transport it. But the two messages are not necessarily conflicting.
Reading between the lines, experts are saying that LNG has a huge potential, but it is emerging slowly. The panellists of the Unconventional Gas & Oil Summit recently stated that LNG could turn out to be a central instrument to diversify the energy mix of several member states, despite some tightness and some threats posed by traditional exporters.
“The availability of LNG in Europe has been increased,” stated Philip Lowee, Director General for Energy at the European Union.
But apart from intrinsic tightness of the market, there are also other hurdles.
According to Lowe, traditional exporters like Russia are interested in impeding developments of LNG. Decreasing prices in the short-term, they can discourage the construction of LNG plants in Europe, offsetting the positive externalities stemming from the shale gas revolution in the US.
“The shale gas revolution has a positive impact in placing a cap on the development of prices of delivered gas in Europe. But it is very easy for our major suppliers to adjust that price to make sure that LNG does not develop significantly,” warned Lowee during the conference in London, noting however that European gas markets are increasingly interconnected also because of LNG projects.
Reloading of LNG to Southern Europe
“We see a lot of regasification plans and we also see a good interconnected pipeline grid, but also something new in Europe: the reloading of LNG,” explained Maximilian Kuhn, Scientific Officer at the Institute for Energy and Transport, European Commission.
Reloading is a category of cargo diversion. It consists in a purchase of the LNG cargo, discharge from the vessel into the storage tank and a subsequent reloading of the LNG into a ship heading normally to another country.
“You see a lot of reloading from Belgium going to Spain and Greece, but also from Spain to Italy and Greece,” noted Kuhn.
Diversion to Europe – another consequence of US shale gas
Another mechanism that increased the availability of LNG in Europe is the diversion to Europe of cargoes originally destined for the US. As a consequence of the shale revolution, the United States is indeed less dependent on gas imports and several exporters diverted supplies to Europe.
“Many of the LNG cargoes destined to the US have been derailed to Europe... I believe these cargoes were much cheaper,” said Sally Kornfeld of the International Oil and Gas Activities Office of Fossil Energy, US Department of Energy.
Other experts claimed that the cargoes diverted from US had a really limited positive impact on European gas markets. But none questioned the fact that the potential availability of LNG in the Old Continent can increase as a consequence of the shale revolution in North America.
LNG from the United States
Earlier this year, the energy company Centrica struck a deal with Cheniere Energy Partners to import LNG from shale fields in Lousiana. The contract is for an initial 20-year period, with first deliveries due in 2018. The agreement marked the first ever long-term LNG supply deal from US to Europe, following the intention of US President Barack Obama to support exports and a free trade agreement with Europe.
US exports have been historically restricted to insulate the American market and decrease gas prices, but also for the lack of infrastructures for converting the gas to liquid and transferring it to tankers.
Despite the bureaucratic hurdles – US companies still need authorization from the Department of Energy to export gas to all but a handful of countries with free trade agreement – Obama said that the US could become a net seller of LNG in the next seven years.
Shale gas revolution changed the cards on the table and LNG projects are underway. This is the case in Europe, from Cyprus to Denmark, from Italy to Poland. Experts can be concerned because of the tightness of the LNG markets, but nobody can deny that LNG is another trump card in the hands of the industry.
Sergio Matalucci