Strong drawdowns from European storage could make room for about 120 LNG cargoes during the summer months
European LNG demand could grow to 100M tonnes in 2021, with imports rising in the UK, France, Spain, Italy, Belgium, the Netherlands, Poland, Greece, Lithuania and Turkey, according to analyst projections. Much of this demand will be shaped by available storage during the 2021 European summer season.
A new entrant to the market, Croatia, began importing LNG at the beginning of the year when it took delivery of its first chilled cargo at its newly commissioned floating storage and regasification unit (FSRU) LNG Croatia. Additionally, Turkey will add its third FSRU this year, the 170,000-m3 Ertuğrul Gazi. The country’s other FSRUs operate in Hatay and İzmir. Owned by BOTAS, the newbuild FSRU strengthens Turkey’s energy security, providing it with flexibility to import LNG from various countries or the spot market, without being constrained by pipelines.
“2021 has started off with a bang,” said Poten & Partners short-term forecast manager, LNG Kristin Holmquist. Speaking at a Poten & Partners webinar in January, Ms Holmquist said the global LNG export market has seen “a big resurgence,” after a relatively flat October, November and December. The big beneficiaries of this uptick have been US LNG producers.
However, unlike 2020, when Europe absorbed large volumes of US LNG, more recently those volumes have been flowing to northeast Asia, Japan, South Korea, Taiwan and China. Cold snaps in Asia have been driving demand, Ms Holmqvist noted, saying a “huge amount of volume” went to China in December. The stronger appetite for LNG in the Asian market has been reflected by higher prices, which hit levels of US$30/MMbtu in January.
“The LNG market is becoming a much more commoditised market, where supply and demand dictate price”
“The LNG market is becoming a much more commoditised market, where supply and demand dictate price signals,” she noted.
A tight LNG shipping spot market, combined with increased demand from Asia during a bitter winter season, pushed LNG carrier charter day rates to record levels. BP chartered Nigeria LNG’s 175,000-m3 LNG Abalamabie for a Bonny Island loading in early February at around US$350,000/day, according to a report in Argus.
“Shipping rates have been extremely high because US LNG production is heading to Asia, driving tonne mile demand dramatically,” said Ms Holmquist. “This is a change from last year when ships were going to Europe instead of Asia.”
India, China, Taiwan and Japan, and South Korea will represent the “engines of growth” for demand in the LNG market, she said, with these markets accounting for about an 8M tonne demand increase in 2021. Despite being exporters of LNG, both Indonesia and Malaysia will increase their imports as domestic sources of natural gas decline and domestic demand increases.
Observed Ms Holmquist: “The growth in these countries is extremely important to keeping the LNG market balanced and to keep the LNG market growing.”
Storage levels will shape demand
However, Ms Holmquist said she expects demand for LNG in Europe to decrease in 2021 and 2022, but the demand will be determined by the seasonal storage build of LNG during Europe’s summer months. Ms Holmquist noted: “[For] a typical storage build during the summer months, we’ll actually end up on the low side as a five-year range. What that means is there is about 12 bcm (billion cubic metres) of room in European storage for additional volume, which is more than 120 cargoes of LNG. So that’s going to allow Europe to absorb more volume, which can help the rest of the pie increase in the rest of the world.”
She continued: “European storage level draws are painting a more optimistic picture in the summer months of 2021. The drawdowns in storage in Europe have been higher than expected, and less volume has been available to go to Europe because of the recovery in the Asian market. In the base case, there is room for a lot more LNG.”
Much of that LNG supply could once again come from the US. Overall, the volume of LNG exports from the US is expected to be stronger and while there will be some growth in LNG production volumes in Malaysia and Australia – with Prelude FLNG now shipping cargoes – US LNG production will expand by about 8M tonnes.
Other exporters, such as Indonesia and Algeria, will see declines in LNG volumes and Norway will have a “strong negative on the market”, given the issues it is having with Hammerfest LNG, which probably will not be wrapped up until October.
In summarising, Ms Holmquist said: “What we’re seeing is that the European market is receiving less (LNG), leading to storage draws. China’s growth will be slower due to increased pipeline imports and supply growth will be dominated by the US, but will be dependent on how much volume Europe can take yet again.”
Of course, 2019 was a record year for European LNG demand, with imports reaching 85.9 million tonnes (mt) – an increase of 37.0 mt over 2018.
According to GIIGNL data, all of the LNG importing countries in Europe increased their LNG imports. The three leading countries were Spain, with15.7 mt, France, with 15.6 mt and the United Kingdom at 13.6 mt.
At 9.77 mt, Italy was Europe’s fourth largest importer of LNG. Operating off the Veneto coast, the Adriatic LNG regasification terminal provides about 10% of Italy’s national gas consumption. Adriatic LNG has regasified and delivered to the national pipeline network more than 69Bn cubic metres (bcm) of gas supplied by ships carrying LNG from Qatar, Egypt, Trinidad and Tobago, Equatorial Guinea, Norway, Nigeria, the United States and Angola. The Adriatic LNG terminal can accommodate LNG carriers with capacities from 65,000 m3 to 217,000 m3 of LNG. Adriatic LNG is operated by ExxonMobil Italiana Gas and Qatar Terminal Limited, a subsidiary of Qatar Petroleum, and SNAM.
“In Italy, we are the only real international hub of the liquefied natural gas market,” said Adriatic LNG law and market manager Sebastien Bumbolo.
Securing access to supplies of clean-burning natural gas is important for Italy and European countries for the energy transition. Adriatic LNG external relations manager Alfredo Balena said: “LNG is a strategic source for the achievement of climate goals and for the diversification of sources through sea-transported competitive, flexible supplies.”
To ensure that supply, Adriatic LNG is seeking public comment regarding one of the largest long-term LNG regasification capacity auctions in the Mediterranean and amendments to Italy’s regasification code.
“The open season is one of the most important events for the entire energy market”
As much as 153 bcm per year (bcm/y) of LNG regasification capacity could be considered for the next 25 years during Adriatic LNG’s open season this summer. All gas and LNG market players – both at national and international levels – have until 22 March 2021 to send comments.
The action by Adriatic LNG complies with new rules put in place by the Italian Ministry of Economic Development and the Italian Regulatory Authority for Energy, Networks and Environment. As a result, Adriatic LNG will be able to offer products with a duration up to 25 years, with the start of open season during Europe’s summer 2021.
Calling the open season “one of the most important events for the entire energy market” in the Mediterranean, Mr Bumbolo, said: “This is one of the largest regasification volumes ever auctioned, equivalent to over two years of natural gas consumption in Italy, if we consider the average annual consumption of recent years.”
Adriatic LNG said the capacity offered through the open season could reach 153 bcm/y, considering existing capacity (1.6 bcm/y and, from end-2034, 8 bcm/y), already technically available additional capacity (1 bcm/y) – as provided for in the project for additional terminal capacity submitted to the Ministry of Economic Development – and new capacity to be developed (0.5 bcm/y).
Mr Bumbolo concluded: “Our offer represents an extraordinary opportunity for national and international gas market players to diversify their portfolios by leveraging on the great potential offered by the global LNG market. In this way, Italy will have a new instrument to increase the natural gas internal market’s competitiveness by attracting the intrinsic value of an energy source, the gas in the form of LNG, produced in many parts of the world and sold on a competitive market.”