European Natural Gas War Heats Up As Prices Rise

Authored Liubov Georges via OilPrice.com,

Europe’s liquefied natural gas imports have surged sixteen percent (from 40.9 bcm in 2016 to 47.4 bcm in 2017) to become the third largest source of gas supply after Russia and Norway. The re-emergence of Europe as a major LNG market came after years of coal and nuclear power plant retirements as well as steep declines in Europe.

In global gas markets, Europe looks like a bright star in terms of commercial opportunities over the next few years, as growing demand coincides with rising prices and strong imports. The United States, with four new LNG projects under construction, is in excellent position to seize the opportunity as a supplier in this dynamic market and assert the strategic role as it challenges Russia’s dominance as the region’s top gas supplier.

Europe’s energy market is undergoing structural changes that allowed natural gas to gain a larger share in the total energy mix over the last two years. After almost a decade of lackluster demand, market expectations for gas were tempered. Yet, contrary to this bearish outlook, gas consumption across the EU grew by 52 bcm (11%) between 2014 and 2016 and was called “one of the biggest surprises” by Venture Global LNG, Inc.

The driving factor behind the recovery was the coal- to- gas move in the power sector that reduced Europe’s coal fired capacity to 156.6 GW in 2017 compared to 190 GW in 2010. National public policies and market forced the retirement of most remaining coal plants by 2030. As Europe’s need for gas increased, production from the North Sea and Groningen field in the Netherlands has been steadily declining. Groningen’s output, in particular, was slashed from 45 bcm in 2015 to 12 bcm in 2017. Dutch regulators expect to completely shut down Groningen production by 2030. This in turn will create a significant supply gap within the European gas market.

As Europe’s gas demand grew in 2017 it turned first and foremost to Russia. Despite concerns over Russian dominance over supply, its export of “blue fuel” to Europe has grown to reach a record high 193.9 Bcf in 2017 - eight percent higher than its previous record set in 2016. It is commonly said that Russia is flooding Europe with large volumes of gas to undercut prices and keep LNG at bay. In reality there is no evidence of any price war. So far this year, prices at Europe’s two largest hubs in the United Kingdom and Netherlands rose by 25 percent while gas price at Germany’s border increased by twelve percent. Gazprom, the world’s largest gas producer, targets increased gas sales to Europe as a profit opportunity rather than a test case of irrational market behavior. Nonetheless, the surge in gas exports has led to a situation where pipeline capacity between Russia and the EU, including Ukrainian gas corridor (140 bcm/year) and Nord Stream 1(60 bcm/year) is fully booked, pushing prices to the highest level since 2015. If Gazprom decides not to renew gas transit contracts with Ukraine’s Naftogas in winter 2019 (an unlikely but possible scenario), a major gas price hike may be in store for Europe.

Europe’s hub prices are already nearing the Asian LNG price level--the world’s premium gas market and highest global price benchmark.

(Click to enlarge)

North Asia Spot LNG versus Dutch TTF Hub (2017 - 2018)

Thanks to the price rally, more LNG from the Atlantic Basin found its way to Europe than in previous years. (a net increase of twenty seven percent from 37.51 bcm in 2013 to 47.4 bcm since 2017). Looking ahead, LNG traders may prefer Europe as a primary market rather than incurring higher shipping costs when sending supply further east. Under current price dynamics, there is little to no incentive to reload cargoes from Europe to Asia. The European Union is the only region that is able to effectively arbitrage between pipeline and LNG volumes, and which also has an underutilized re-gasification capacity.

Although U.S. LNG exports to the EU almost doubled in 2017 Europe has not yet proved to be the destination of choice for the U.S. producers. This can quickly change as European hub prices further diverge from Henry Hub; a shift that is already creating a strong commercial case for US LNG. The spread between day-ahead prices at France’s Trading Region South (TRS) gas hub and Henry Hub in Louisiana, for example, already exceeded $10/ MMbtu in the first quarter 2017.

Wood Mackenzie projects that almost 60 percent of U.S. LNG will go to Europe, making the United States along with Russia the main suppliers for new incremental demand by 2025. Today European buyers are already amongst the most enthusiastic supporters of US LNG with numerous companies contracting off take volumes from US projects, including Sabine Pass and Corpus Christi. In fact, final investment decision on Cheniere Energy’s Corpus Christi terminal (9 mtpa ) was partially supported by Portugal’ s EDP 20 year sales and purchase agreement for 0.77 Bcf. In November 2017 Polish gas supplier PGNiG signed a 5 - year contract with Centrica LNG Co. Ltd. for nine shipments of liquefied natural gas from Sabine Pass terminal (13.5 mtpa) in southwest Louisiana to Poland's gas port in Swinoujscie on the Baltic coast. In coming years we will see more SPAs being signed between the United States and European buyers solidifying energy trade between the two biggest economic partners and key allies.

(Click to enlarge)

Global LNG Flows and US LNG Exports (2016 - 2017)

After years of decline, gas demand is growing again, reaffirming the importance of the fuel for Europe’s energy future. At current gas production levels of 74 Bcf/d, cost-competitive U.S. LNG producers have the potential to fill the growing gap in Europe’s gas supply and become an irreplaceable trading partner in the process. Europe offers market liquidity, creditworthy counterparts and physical demand which will make it a premium market in coming years. Against the backdrop of trade war and tariffs, U.S. LNG can prove to be a driver for better Transatlantic trade relations.

Comments

Fireman Thu, 06/14/2018 - 03:31 Permalink

USSA can't even get its crap into orbit without Russian rockets yet expects its vassal Europeons to go back to the stone age to appease the chosenite scum running Washing town and Pentacon Murder Inc. Funny!

The only thing sustaining the illusion of the so-called USSAN energy bonanza BS is the entire Ponzi scam swamping the Wall St sewer behind the fake "economy" of war and debt without end on Chinese credit. And then with fewer than a half a dozen LNG plants barely functioning after hurricane damage and rusting infrastructure the Europeons are supposedly going to pay triple prices to get USSAN gas shipped to Urupp instead of continuing with guaranteed problem free Russian supplies piped directly to consumers.

USSA can't even supply Mexico with LNG yet expects Europeons to bend over and pay through the nose for what USSA can't produce. The Europeons see through the lies and are ready to board the One Belt One Road Sino Russian mega global project and jump the sinking ship of USSAN fools and blow hards.

The only viable gas being produced from squeezing rocks in USSA'S "shale Miracle" is the gas coming from the corrupt hubris bloated morons in Washing town. When the Jim Willie Scheisse dollah post reset finally becomes the local currency USSANS will be lucky if they haven't maxed their credit rating to afford their Chinese stuff at the Peoples Walmart feeding kitchens let alone become the masters of global energy. In their opioid delusions perhaps.
Not even 6 plants in operation yet these clowns are going to supply the planet with ships not even built! Dream on.

https://instituteforenergyresearch.org/analysis/u-s-become-major-lng-ex

are we there yet Fireman Thu, 06/14/2018 - 03:44 Permalink

Russia is a white country with lots of gas and ready pipelines to Europe, or Europe can buy gas from the Middle East muslems that hate you and sponsor terrorists in Europe while they invade with unskilled hateful ugly people that raise crime rates and generally hate western culture.
Seems like a simple decision if the bankers were not in charge.

In reply to by Fireman

philipat are we there yet Thu, 06/14/2018 - 04:18 Permalink

Quite apart from the obvious disinclination of Europe to accept US LNG at the point of a gun, this article is disingenuous at best when it comes to costs. As I understand it the landed CIF cost of US LNG remains almost double that of landed Russian pipeline gas.

Also nobody trusts the US to honor its obligations longer than it takes for the ink to dry on a contract. When the next trade dispute or extra-legal sanctions are imposed, the first thing the US does is cut off supplies and/or spare parts etc. Russia is a more reliable partner.

In reply to by are we there yet

bshirley1968 wafm Thu, 06/14/2018 - 06:48 Permalink

To export LNG, it must be compressed, bottled, and shipped in expensive special designed tankers.....all the way across the Atlantic. It takes a lot of energy just to get that done.

There is no way in hell that that laborious, energy consuming process can ever be as efficient or cost effective as turning on the valve of a pipeline......Ever! Especially when the pipeline already exist.

The ONLY way the US will be able to compete with Russian gas in the EU market is by subsidizing the industry with dollar fiat debt. The only way that will remain possible is if the dollar can maintain its strangle hold on the world's finance.

Why the big push to sell the gas rather than trying to utilize it in our own infrastructure? Would it be because generating "cash flow" has become a critical need for the debt ridden US economy? Or is it because now the banksters own the US oil and gas industry through the debt they have issued to those companies, and now they will use that debt to funnel oil and gas profits to their coffers? The banksters will get the US government to subsidize the exports and they will rake in the profits.....and the American public will pay through dollar devaluation i.e. inflation.

Based on export projections and construction schedules, it seems too little too late. Not to mention that from a true return on investment model, it is another bridge to nowhere like wind, solar, and ethanol......but those all get government subsidy as well, don't they?

In reply to by wafm

LaugherNYC Fireman Thu, 06/14/2018 - 07:40 Permalink

Awwwwww. Does Ivy-wivan wanna cry???? Meanie USA gonna sell gas instead of Ivy-wivan??? Booooo hoooooooo!

US natural gas production and proved reserves on exponential increase, putting a cap on prices and leverage that Vlad has over Europe. Maybe Vlad will want to use his supersonic torpedos on transit shipping to maintain control of market?

 

In reply to by Fireman

SoDamnMad Thu, 06/14/2018 - 03:40 Permalink

USSA (and it's thieving affiliates) going to war for everyone's gas and oil so of course the price goes up. "For your peace of mind" let us rape you with higher prices.  We are coming out with a bogus story about how Russian gas has Novichok in it which is harmful for your kids health. So don't be going to that NordStream II.

WTFUD Thu, 06/14/2018 - 04:15 Permalink

If Russia invades the UK to steal all our Resources (Debt Instruments & the Like ) we'll need that US LNG which they don't have. I don't expect most of you to grasp this nettle as it's 666D Chess Stuff we're grappling with here.

Mimir Thu, 06/14/2018 - 04:31 Permalink

"U.S. LNG can prove to be a driver for better Transatlantic trade relations."

Oh sure! unless Europe decides it doesn't want to buy LNG from a "friend" that imposes tariffs on import of European products. A tariff of 25% on US LNG would do the trick. 

litemine Thu, 06/14/2018 - 05:25 Permalink

What I don't understand is why the World believes the BS about Russia. 

The Ukraine, after an American COUP then placing an American's Son in charge of their Fuel Pipelines and then when the Russians living in the Ukraine want to be back as part of Russia They get sanctioned? No wonder they want out of Swift......The other Countries that deals went bad were leveled, friends stranded to the North Vietnamese onslaught?

Sure seems some want Money and Power more than helping create peace or even  helping the people in their own Country ?  

To me, looking in, well, it just doesn't smell right.

HenryHall Thu, 06/14/2018 - 07:50 Permalink

>> Europe’s liquefied natural gas imports have surged sixteen percent ... to become the third largest source of gas supply after Russia and Norway.

That statement misleads a casual reader to suppose that Europe does not import LNG from Russia.

Or that Russia is somehow not part of Europe, despite Moscow being the largest city in Europe.

Offthebeach Herdee Thu, 06/14/2018 - 08:59 Permalink

Not big on commodities eh?

Russian price on old, soon to expire contracts.  And guess what Skippy, they're not going to be renewed at old price. ( Maybe.  The US LPG/LNG is getting so disrupting....)

US price is spot market, price. It is bought, not by idiots, because it is the lowest availible, delivered, like a late night pizza.   Gas doesn't store well like mountans of dug coal, or steady like nuclear, or even oil.  So it does burn clean, but it leaks, requires relatively expensive containers, and subject to disruptions and is volume intensive.

 

 

In reply to by Herdee

Mike Masr Thu, 06/14/2018 - 08:10 Permalink

http://www.interfax.com/newsinf.asp?id=837044

U.S. LNG to cost Europe twice, thrice as much as Russian gas - Austrian president (Part 2)

VIENNA. June 5 (Interfax) - Replacing Russian natural gas supplies to Europe with liquefied natural gas (LNG) from the United States makes little economic sense, Austrian President Alexander Van der Bellen said.

"There exists, let's put it this way, a reproach on the part of some U.S. partners that the European Union is overly dependent on Russia in that respect [gas supplies], but they omit that U.S. liquefied gas is two or three times costlier than Russian gas," Van der Bellen told a press conference after talks with Russian counterpart Vladimir Putin.

"Under such circumstances, merely from the economic point of view, there is hardly any point in replacing Russian gas with American liquefied gas," the Austrian president said.

"Under such circumstances, the future cooperation between Gazprom [MOEX: GAZP] and OMV is based on a very strong foundation," van der Bellen said.

 

 

supermaxedout Mike Masr Thu, 06/14/2018 - 09:09 Permalink

So the Dollar has to fall by 2/3 in value compared to the Euro. Then suddenly autos build by BMW and Daimler-Benz in the USA will be exported to Europe.  And Rouble has to go up to be on the sure side. Then the things will look different.

This can only happen when the US Dollar is giving up its role as reserve currency. Without that nothing can help the US economy with its trade gap. 

In reply to by Mike Masr