LNG in Europe: The heat is on
Higher power demand due to hot weather helped pushed up European LNG demand in 2017. But the sector is far from buoyant
Liquefied natural gas imports to Europe rose in 2017, driven by demand from southern Europe, but the overall growth trend over the past decade has been weak, due to increased availability of pipeline gas and low gas-demand growth.
Net LNG imports—after deducting reloaded cargoes—rose by 7.5m tonnes, or 19.5%, in 2017, largely due to an increase in power demand. But the gains were mostly in the south of the continent with a 9.1m-tonne increase in imports to terminals in France, Greece, Italy, Portugal, Spain and Turkey. The gas was for domestic use or pipeline export. This surge was prompted by low hydropower production, reduced nuclear output in France and hot summer weather around the Mediterranean region, according to the latest annual report from the International Group of LNG Importers.
By contrast, in the north, net imports into Belgium, the Netherlands and the UK declined by 2.1m tonnes, largely due to a 2.6m-tonne decline in imports to the UK, which reduced deliveries from its largest supplier, Qatar. Even with last year's higher overall import figure, Europe's share of global LNG imports has nearly halved—from 29.4% in 2010 to 15.9% in 2017, partly due to weak demand, but also because of stronger demand from Asian markets.
Europe was once seen as the prime sink for excess global LNG supply, spurred by the advent of US LNG. But this is no longer the case, with regasification capacity elsewhere in the world, Asia in particular, expanding rapidly. Around 15% of Europe's imports did originate from the US in 2017, but around 40% of US production ended up in Asia and 34% remained in North and South America.
In common with the rest of the world, spot cargoes are playing a more important role in the European import mix, largely due to the increased flexibility of LNG contracts. Europe received around 9m tonnes of spot imports in 2017—around 15% of the global spot trade. That compares to the 35.4m tonnes of spot LNG imported into Asia, the leading region, which accounted for around 60% of the total.
Significant import capacity expansion projects are being undertaken or planned in Greece and Belgium. Greece is seeking to become a regional gas hub, taking advantage of its location on the route of the Southern Gas Corridor pipeline network linking Azerbaijan to Europe.
Depa, the state-controlled gas company, is working with partners to develop a floating storage and regasification Unit (FSRU) at Alexandroupolis, on Greece’s northern coast. This would import up to 4.5m tonnes a year of LNG—around 6bn cubic metres of gas—and feed part of it into the planned Greece-Bulgaria Interconnector pipeline and the Trans-Adriatic Pipeline system. A final investment decision is scheduled for later in 2018, with a view to starting operations by the end of 2020.
Floating storage and regasification units are playing an increasing role
In the shorter term, a new 95,000-cm LNG storage tank is being built at the existing Revithoussa terminal. Completion is due in late 2018, at which point the terminal's total storage capacity will reach 225,000 cm. It will also be able to handle fully-laden Q-flex vessels.
In Belgium, Fluxys is building a fifth storage tank at the Zeebrugge terminal. With capacity of 180,000 cm, it will support transhipment of cargoes from Novatek and Total's Yamal LNG project, which started exporting in late 2017. The tank is scheduled to be commissioned in mid-2019.
Other activity at Zeebrugge reflects the growth of LNG bunkering around the coast of northern Europe. The Engie Zeebrugge LNG bunkering vessel—backed by Engie, NYK, Mitsubishi and Fluxys—was delivered from a Korean shipyard early last year. Since then it has been providing LNG fuel via ship-to-ship transfer in Zeebrugge port. Engie describes it as the world's first purpose-built LNG bunkering vessel.
Europe’s share of global LNG imports has nearly halved—from 29.4% in 2010 to 15.9% in 2017
In June 2017, Shell took delivery of the Cardissa, an LNG bunker vessel with 6,500-cm capacity, which will supply LNG from the Gate terminal in Rotterdam to locations around Europe.
Tough marine emissions regulations, due to be introduced in 2020, are likely to trigger a switch from the use of heavy fuel oil to power shipping to cleaner alternatives, including LNG fuel, as well as low-sulphur oil. This, combined with growth in the market for LNG fuel from European road transport, especially trucks, is likely to provide an extra source of demand for LNG imports and foster the development of bunkering.
A network of regasification terminals served by small LNG carriers plying the European coast with cargoes taken on at the major import terminals could develop as a result.