This week hundreds of industry insiders are heading to Amsterdam for "Europe's largest midstream gas & LNG event", the 25th annual Flame Conference. The setting for the summit is an apt one, as the Netherlands is a sort of poster child for the current state of the liquefied natural gas industry throughout Europe. At one time the Netherlands was the largest supplier of natural gas in all of Europe. Now production is in serious decline as the nation becomes more and more dependent on natural gas imported from other countries.
The transition from energy autonomy to dependence on imports from places like Russia (which already supplies a massive amount of the European Union's fuel demand at approximately 40 percent), northern Africa, Qatar and the United States embodied by the Netherlands is also true for the European continent as a whole. This trend is not only set to continue, but to worsen.
The Netherlands is on track to become a net importer of natural gas. What was once Europe's largest natural gas field, the Netherlands' Groningen field, has already been diminished considerably and will be shut down completely by 2030 as part of the Dutch government's efforts to quell earthquakes caused by gas exploration in the area.
Even after a relatively mild winter, Bloomberg reports that "European LNG imports more than doubled in the first quarter [...] demonstrating a 'genuine underlying demand' according to Alastair Maxwell, chief financial officer of LNG tanker owner GasLog Ltd." Maxwell went on to explain to Bloomberg reporters that, "while buyers took advantage of the lower prices to bring in more cargoes, declines in the region's production were also behind the increases."
So far, as European natural gas production has been in severe decline, low natural gas prices--thanks in large part to a global supply glut--has been the continent's saving grace. As we head into the summer, however, demand for natural gas in Asia is set to keep growing, and gas prices will likely grow accordingly. Related: The Battle For Control Over Iraq's Oil
In the meantime, the European Union's growing dependence on Russia has created a politically fraught dynamic between Europe, Moscow, and Washington. The United States has urged the European Union to ease their dependence on Russian oil. "The U.S. says that dependency is dangerous and is urging the EU to build more terminals to ship in gas from its shale boom to bolster the bloc's efforts at diversification," reports Bloomberg.
In fact, just this week United States energy secretary Rick Perry announced that on Monday in Brussels he signed two export orders for liquefied natural gas as part of an agreement that will raise the United States' export capacity to Europe to Europe to 112 billion cubic meters per year by 2020, more than double the current annual amount. In a rather hyperbolic address to reporters in Brussels Perry compared the introduction of more U.S. natural gas into European markets to U.S. troops during World War II, saying that "the United States is again delivering a form of freedom to the European continent [...] and rather than in the form of young American soldiers, it's in the form of liquefied natural gas."
This week's liquefied natural gas export orders come on the tails of a joint statement pledging to build up strategic energy cooperation between the EU and the U.S., released last year by European Commission President Jean-Claude Juncker and United States President Donald Trump. The initiative to import more LNG from the U.S. realized this week was already established in the statement released last July. "The European Union wants to import more liquefied natural gas (LNG) from the United States to diversify its energy supply," stated the press release.
By Haley Zaremba for Oilprice.com
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Comments
Russia’s position in the EU gas market is unassailable with almost 40% market share and growing. Moreover, Russia’s share will be enhanced further to 45%-50% in the next decade with the completion of both the Nord Stream 2 and the Turk Stream which will bring Russian gas supplies under the Baltic Sea and the Black Sea respectively to the EU when completed by the end of this year.
Russian gas supplies to the EU are projected to continue rising at a time when the EU demand for gas and LNG is growing by leaps and bounds whilst European gas production is projected to decline significantly particularly with the planned shutdown of the Groningen gas field in the Netherlands by 2030.
And while the EU will import US LNG as part of its energy diversification strategy, US LNG supplies will hardly make a dent on Russia’s market share and dominance in the EU gas market for the foreseeable future because US LNG prices can never compete with the price of Russian piped gas now or for the foreseeable future.
In the Asia-Pacific region, the world’s biggest LNG market with the highest prices, US LNG will face formidable competition on price from Qatar and Australia which will continue to dominate this market well into the future.
Russia could benefit immensely from the trade war between the US and China. China has recently retaliated against the United States’ hiking tariffs on $200 bn worth of Chinese goods by hiking tariffs on $60 bn of American exports including LNG.
Russia is already the biggest natural gas supplier to China to be bolstered further by the completion of the Power of Siberia 1 gas pipeline by the end of this year and soon it will become the biggest LNG supplier as well.
Moreover, China has been investing heavily in Russia’s LNG projects. Economically under its Belt and Road Initiative (BRI). Russia has become one of the biggest recipients of Chinese investment receiving so far $46 bn in Chinese funding for BRI projects, the latest of which was the Yamal LNG project and the Arctic LNG 2 in Russia’s Yamal Peninsula.
The trade war could adversely affect US LNG projects. Without both Chinese funds and guaranteed Chinese LNG demand, some of the US LNG projects could stall.
Sensing an opportunity not to be missed, Russia’s LNG company, Novateck expects to increase its LNG production capacity to 70 million tons per year (mtpa) by 2030 up from 57 mtpa. That should propel Russia to the third global LNG production slot behind Qatar and Australia possibly overtaking the United States in the mid to later part of the next decade.
Russia’s growing dominance in global gas and LNG markets will thwart any attempts by the United States to steal gas market share from it.
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Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London