The role of LNG for Europe is “multi faceted,” according to Andrew Walker, Vice President Global LNG, BG Group.
LNG in Europe, he said, is a diversification of supply, “A means of getting gas into the European network whose connectivity is not so good, and if we look at the new markets that have emerged last year, Europe is in the mix, adding new construction of locations.”
The key is supply diversification, away from Russian gas. He mentioned the completed and forthcoming projects, in Lithuania and Poland, respectively.
“There's the balancing element and also the option to access global supplies when it needs them,” he offered, although he conceded that the liquidity of the global market towards those purposes is questionable.
For most of the LNG industry's history, he said, it has grown exponentially, at around 8-9% per annum. That is, until things grew difficult in 2010-11, when it began to plateau. It was then, he said, that Asia became the predominant destination for cargoes and the Fukushima disaster in Japan had helped growth. By 2014, that growth had slowed.
That year, Europe, including Turkey and Greece, he said, had imported around 33 million tons.
“In terms of infrastructure Europe has, it's really quite a low utilization factor; 33 million tons is about 22% utilization, on average,” commented Mr. Walker, who said that the continent has 150 million tons of import capacity.
Turkey, he said, uses 60% of its capacity.
Supply, according to Mr. Walker, is in hiatus. Increasing supply only comprises 3.5 million tons/year – less than a train, he said.
Meanwhile, growth is being seen in inflexible markets like Asia, the Middle East and Latin America, outpacing supply. “That means, in order to balance the system, LNG has to come from somewhere,” he explained, adding that it's coming from Europe.
He also said there is a softening of the market, explaining, “Asian spot prices went down last year – they're generally a good indicator of global supply and demand.”
Those prices, he said, had gone down to $14.99 from the usual $16-20, and the drastic fall in oil prices had also affected the spot price.
Mr. Walker described last year as a “year of two halves.” Spot prices had been up and had been at crude oil parity, but by summer were half of what they'd been in winter, and then something happened that hadn't been seen in a long time, in March.
He recalled, “We got to see a flood of cargoes heading back to Europe. BP sent their cargo around the Atlantic, trying to find a destination they could send it to.”
Still, most LNG had been sold at long-term contract prices; the spot price being an indicator of supply and demand.
Europe, he said, had been importing a bit more LNG. He commented, “I don't think we're seeing a flood of cargoes coming back to Europe based on the price indicators.”
Showing a diagram of LNG imports into Europe according to a 3-year average, he showed that Europe is starting to stabilize at 4 bcf/day, hitting a plateau, despite the pull from Asia not being that strong.
“I have a suspicion that Europe probably can't go much lower than this,” he said, explaining that it signalled a baseload role for LNG in Europe.
Regarding volumes coming out of Europe, he explained that mainland Europe – France, Italy and Spain – had become much more flexible, while suppliers like Algeria and Nigeria had become flexible in their approach.
He offered, “Europe as a whole has become quite a flexible market – I think that's an important learning from the last few years.”
Presenting the supply/demand balance, he said he doesn't expect a huge uptick in supply despite Australian supply coming on towards the end of the year. Asia, according to Mr. Walker, will continue to see growth, so it is not likely that a huge flood of volumes will be coming back into Europe; only perturbations were likely, year-to-year.
He explained, “That's going to be important for Europe going forward, because I think we'll be entering a period where we'll see more ebb and flow of volumes, and Europe is going to benefit at times – for short periods in terms of flows into the market.”
There is a consensus of growth for LNG among commentators, said Mr. Walker, who said an additional 425 million tons of trade could be seen by 2025 at the “high end,” with 100 million tons of new supply by then.
“Asia continues to be the predominant importer, but we're going to see volumes coming back into Europe round about a decade.”
Australian and US LNG, he said, will bring Europe back eventually to the levels seen in 2010 (by 2020), with some level of growth beyond that, via policy decisions and markets becoming more connected.
Going forward, he noted that the low oil price could affect investments in LNG projects. He commented, “There's been a lot of speculation in the press that we may see a slowdown in FIDs as we look forward. People tend to get used to the lower price environment.”
The oil price over the last decade, he explained, had been fairly cyclical, as seen from investments made by Qatar, Australia and now the US.
“If investments slow down, we could well go into another hiatus around the turn of the decade, which would have implications for Europe, putting us in an environment which looks like the one we're in at the moment.”
Addressing the potential huge LNG volumes that could potentially be delivered to the market, Anne-Sophie Corbeau, Research Fellow, KAPSARC, listed the 5 countries/regions that are potential suppliers: Australia, Canada, the US, Russia and East Africa. She opined that just because there is planned capacity does not mean all projects will move ahead.
Looking at the announced contract obligations, she observed that the US is slightly ahead. “However, a lot of that LNG would go to aggregators and it's not because the US seems to be slightly ahead, but others may not take final investment decisions,” she said, adding that East Africa/Mozambique need to act rapidly, for example, not to be squeezed by the rise of US LNG.
And, if FIDs are taken, Ms. Corbeau said it's very questionable where the LNG from those projects will go – will they have the flexibility to be able to dump shipments on markets?