Europe’s hunt for non-Russian gas creates stiff competition for LNG

Also, prices of LNG are considered certain to rise in the short to medium term, as Europe’s 27 member nations bid for extra volumes in what looks very much like a seller’s market. As the IEA’s director for energy markets and security, Keisuke Sadamori, pointed out in April: “Stiffer competition for LNG supplies is inevitable as Europe reduces its reliance on Russian gas.” He also cited the importance of transitioning towards low-carbon sources of energy.

And surely irritating China and other major Asian buyers, “at least 20 billion cubic metres (bcm) of LNG would need to be diverted to Europe, primarily from Asian markets,” predicts the OIES. Some of this would likely be volumes that have already been contracted elsewhere.

Finally, the global market will inevitably become much tighter because sanctions mean that most of the Russian LNG already imported into Europe cannot be redirected to other LNG markets. Thus, Russian LNG will progressively be taken out of the equation, with important impacts on Russian LNG carriers such as Sovcomflot, which has been banned from UK ports.

Busy terminals

LNG import terminals, such as Gate Rotterdam, will be under pressure to expand capacity. According to LNG analyst Argus, “there is the possibility that the import capacity of Gate Rotterdam could be expanded from 12 bcm a year to 20 bcm.” However, as yet there are no firm details about how this might be achieved.

Also in the Netherlands, state-owned natural gas transportation and infrastructure group Gasunie signed a five-year charter with Exmar for the floating storage and regasification unit (FSRU) S188. The floating LNG terminal would be located in the Eemshaven port and operated by Groningen Seaports.

“At least 20 bcm of LNG would need to be diverted to Europe, primarily from Asian markets”

Exmar said the goal for both companies is to deploy the FSRU quickly and have import terminal functions up and running by the end of Q3 2022. 

"Gasunie will use the FSRU S188 as a floating LNG import terminal at Eemshaven in Groningen, the Netherlands, in view of the geopolitical developments currently going on in Europe and the increased emphasis of governments on the security of energy supply," Exmar’s statement said. 

The 2017-built, 120-m FSRU has a capacity of 600 million cubic feet per day.

Looking for more LNG

The EU is in a hurry. Europe already imports half of its LNG from just two countries, the US (26%) and Qatar (24%), as energy consultant Rocky Mountain Institute pointed out in April. And this, according to the OIES, does not leave much room for manoeuvre. As the institute explained in an analysis in April, Brussels is aiming to boost non-Russian gas supply by 63.5 bcm in the hope of slashing Russian imports by two thirds by the end of 2022, a target that most analysis consider ambitious.

This can only be done, estimates the OIES, by finding a lot more non-Russian LNG as well as other measures, such as increasing production of biomethane, renewable energy and EU-wide economising on the use of gas.

But where will the LNG come from? “On the supply side, an extra 50 bcm a year of LNG imports would not only absorb the forecast growth in global LNG supply in 2022 but also require a redirection of cargoes from Asia to Europe,” the OIES says, echoing other analysts. “[This implies] that European prices need to remain high to attract such cargoes.”

As the OIES explains, before the invasion the EU was already importing about 10 bcm more LNG in the first two months of 2022 than in 2021. The institute’s conclusion is that 30 bcm of the targeted 50 bcm “is likely achievable,” but it remains uncertain about how the 20 bcm shortfall can  be made up.

Growing fleet

One of the big issues is whether the global LNG fleet is big enough to fulfil an expanded output, especially from the US and Qatar. As LNG Shipping & Terminals pointed out in the closing days of 2021, more than 100 new LNG carriers will be needed – and quite soon. BRL shipping consultants, for instance, reports that up to 151 newbuilds are under consideration in an historic newbuilding programme. In March, the orderbook stood at 233 ships.

Demand destruction

The EU’s main problem is that LNG volumes cannot grow at the rate that Brussels needs to wean itself off Russian supplies. In Covid-hit 2020, global LNG volumes crept up by just 0.3%, according to the International Gas Union, which has incidentally suspended Russian membership “until further notice”. And liquefaction capacity is hardly going through the roof – the only new projects and trains coming up in 2022 are in the US.

“The expansion project at Sabine Pass Train 6 came online in February 2022 while an entirely new export plant – Calcasieu Pass – loaded its inaugural commission cargo on 1 March 2022,” the OIES says. “Not all of the capacity of these new supply sources will be available for the whole year as they ramp up volumes.”

“European prices need to remain high to attract such cargoes”

And although two new sources – the Coral-Sul floating LNG production unit in Mozambique and the third train of the Tangguh LNG export plant in Indonesia – are due to come on in Q4 2022, “the volumes would be very small”, the institute notes. On the bright side, the institute estimates that the EU’s hope of an extra 50 bcm is “at least plausible”, but only provided all the export plants hit nameplate capacity during the year.

Although no longer a member of the EU, the UK is seen as a vital cog in the supply chain. This could only happen, suggests the institute, if the UK is used as a land bridge, importing the LNG and then re-exporting regasified molecules across the Channel. Even with all other options working in the EU’s interests, for instance by fully utilising pipeline capacity on the border between Spain and France, “the EU would still need at least 5 bcm of LNG to be regasified in the UK and re-exported to the EU to hit the 50 bcm target,” says the institute.

All the current estimates of Europe’s ability to plug its looming LNG gap depend on two main eventualities – the diversion of supplies from elsewhere and favourable weather through summer and autumn.

There is a third possibility. In mid-April, Russia was continuing to pump gas to the EU, mainly through Ukraine. But if Vladimir Putin decides to shut the taps in retaliation for sanctions, it would trigger a full-scale LNG emergency that would test the entire logistics supply and infrastructure to its limits.