EU has potential to increase LNG imports in short term
BAKU, Azerbaijan, Aug.7
By Leman Zeynalova – Trend:
The European Union (EU) EU has the potential to increase liquefied natural gas (LNG) imports in the short term, Trend reports citing Gas Exporting Countries Forum (GECF).
An increase in global LNG liquefaction capacity by 24 mtpa to 444 mtpa and growth in global LNG trade by 37 mtpa to 352 mtpa in 2019 laid the foundation for global LNG oversupply and incremental LNG supply to the EU as the market of last resort.
The EU possesses large LNG infrastructure, including 23 large-scale LNG regasification terminals with total sendout capacity of 209 bcm, with Spain (61 bcm), the UK (49 bcm), France (35 bcm), and Italy (15 bcm) representing 77 percent of the regional capacity.
Huge underutilisation of regasification capacity in the EU, with utilisation rate reaching only 49 percent in 2019 and 55 percent in the first half of 2020, implies that there is a potential to increase LNG imports in the short term.
A sharp fall in spot prices at the European gas hubs, with the average TTF price dropping from US$7.90 mmBtu in 2018 to US$4.79 mmBtu in 2019 and to US$1.83 mmBtu as of 1 July 2020, has boosted spot LNG imports with hub-based indexation.
A fall in spot LNG price spread between Asia and Europe to below US$1 mmBtu in 2019 and 2020 has dislodged Asia from the status of a premium market, with supply to Europe becoming more profitable for various exporters.
The imposition of import duties on the U.S. LNG by China, as a result of the bilateral trade war, has diverted much of the U.S. LNG from China to the EU, with the prospects of resumption of large-scale LNG exports from the U.S. to China still being uncertain.
A fall in LNG shipping cost, driven by a decrease in charter rates and shipping fuels prices, has raised the competitiveness of long-haul LNG supply from remote regions, with the average LNG shipping cost for spot cargoes from the U.S. to the UK declining to US$0.85 mmBtu in 2019 and to US$0.47 mmBtu in June 2020.
LNG has been gaining momentum in the EU transportation sector, specifically as a fuel for LNG-fuelled trucks and as bunkering fuel, which boosts its demand.
European major oil and gas companies, holding long-term offtake contracts with LNG plants all around the world and acting as global portfolio players, have recently had an incentive to supply LNG to Europe as a market with higher margins.
The expanding practice of supplying regasified LNG to landlocked and isolated EU countries creates new market opportunities for LNG suppliers.
The existing spreads in spot prices at different European gas hubs encourage market operators to deliver LNG to one country and then re-export regasified LNG by gas pipelines to other countries.
Follow the author on Twitter: @Lyaman_Zeyn