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Qatargas fires LNG warning at Europe

The majority of Qatargas's liquefied natural gas (LNG) currently going to Europe could be diverted to other destinations - if the price is right, the world's largest producer said on Monday

Qatargas has been flooding Europe - especially the UK where it has import capacity at South Hook - with cargoes over the past few months, with the UK overtaking Spain as the world's third largest importer.   The top two are Japan and South Korea.

"There is not the slightest of doubt that Qatargas will remain a major supplier into Europe. That having been said, the majority of LNG supplied to Europe is divertable," Andrew Dyke, assistant director of marketing at Qatargas, told the Flame conference in Amsterdam.

"If the European market conditions are such that either gas supply is too abundant, or demand for gas and LNG does not require available supply, it is possible that this LNG could go to other markets."

Earlier this year, Qatargas warned that tankers might be diverted to Asia if European buyers continued to buy on the spot market instead of long-term oil-linked contracts as favoured by customers in Japan and South Korea.

Europe is Qatargas's largest customer, accounting for 45% of its market, while Asia makes up 35% of its sales, with the Americas accounting for the remainder, according to Dyke's presentation.

Alternatives

He also said that the ability to change LNG supply to market conditions was working well, citing Qatargas's ability to send another 60 cargoes to Japan after the earthquake in March and the deal to sell Centrica 2.4 million tonnes a year (t/y) over three years as an example of flexibility to sign medium-term contracts.

"If LNG market needs elsewhere are significantly stronger than in Europe, the optimisation (of supply) and medium- to long-term diversions will continue," he said. 

"If European buyers need firm long-term LNG contracts, the commercial terms must compete with long-term global marketing alternatives."

Asian buyers always outbid European and American buyers for LNG as most have no domestic gas supply. Industrialised nations such as Japan and South Korea also like to secure long-term supply to avoid shortages which could have an impact on factory output.

Meanwhile, Japan’s Chubu Electric has agreed to shut its 3.5 gigawatt Hamaoka nuclear plant after a request by the country’s prime minister Naoto Kan.

Kan said the nuclear power plant, which is south of the crippled Fukushima Daiichi reactors, lies on a major fault line and was not capable of surviving a strong quake.

IEA gas analyst Hideomi Ito said the latest nuclear plant shut down would add "a few extra percent" to LNG import demand on top of the existing 10% stemming from nuclear outages directly affected by the earthquake in early March.

Japan imported around 70 million t/y of LNG last year, which indicates the Hamaoka shutdown could mean another 2 million to 3 million t/y of LNG would be needed to make up for the shortfall. Japanese LNG imports were already expected to rise after the earthquake and tsunami knocked out around 10 gigawatts of nuclear power capacity.

The shutdown also comes as Japan enters the high demand summer season, with the country's electricity consumption peaking due to high air conditioning usage. 

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