Cyril WIDDERSHOVEN^

The current European natural gas markets still are looking at very high price settings, while demand is still below historical levels and supply could be hit by Asian demand increases. Since the Russian invasion of Ukraine Europe’s former fledgling LNG import strategies and capacity has changed dramatically. Within a year European countries, especially Germany, France and the Netherlands, have been putting in place a wide-range of new LNG regassification capacity to allow increased imports to hit markets. Thanks to the availability of US LNG volumes, a real European energy crunch has been deflected, even that overall price settings have caused a dramatic demand decrease and blood on the streets for energy intensive industries. To prevent this to happen again, additional LNG import capacity is being planned, as Europe’s import capacity is slated to increase from 270BCM in 2022 to 400BCM in 2030. Even that the main underlying reason for this drastic expansion of import capacity is clear, security of energy supply, the picture in 2030 is much less bright than currently being indicated by politicians and market players. In a new report by the Institute for Energy Economics and Financial Analysis (IEEFA), the latter warns that 60% of total capacity in 2030 could be stranded assets. Based on IEEFA analysis, around 250BC (60%) of the 400 BCM in 2030 will be idle, as demand is expected to be only around 150BCM. In this scenario, as the IEEFA said, only 36% of total capacity will be utilized. Most of the assets under severe pressure around 2030 are expected to be in Spain (50BCM), Turkey (44BCM) and the UK (40BCM).

If the assessments of the IEEFA are going to materialize, the current LNG import capacity expansion plans are just a very expensive insurance policy. IEEFA’s report writer Ana Maria Jaller-Makarewicz, stated that “this is the world’s most expensive and unnecessary insurance policy. Europe must carefully balance its gas and LNG systems and avoid tipping the scale from reliability to redundancy”. She even stated to the press that “boosting Europe’s LNG infrastructure will not necessarily increase reliability – there’s a tangible risk that assets could become stranded”. In addition to the above mentioned countries, also France (14BCM), Italy (10BCM) and Germany (9BCM) are under threat of looking at stranded assets in 2030.

European politicians and market parties should do a new reality check. The total LNG import capacity, planned and already in place, will be around 400BCM in 2030, while overall Europe’s gas consumption in 2021 (before Ukraine war), was at 413 BCM. The IEEFA expects that total gas demand (pipeline-LNG) will be around 390BCM in 2030. The latter could be even much lower, if EU plans currently being implemented will be reducing gas usage inside of the continent by 30-33% by 2030.

  At the same time, facts emerge that imports of Russian LNG in Europe are again increasing substantially. While 80% of total Russian pipeline gas to Europe is removed from the market, Russian LNG imports increased by 12% in 2022, reaching 20.2BCM. While media and politicians have been looking at the increased role of US LNG and Qatar, Russia silently is the 3rd largest exporter of LNG to Europe. EU’s largest LNG importer is France, with 35.7BCM, of which 7.4BCM came from Russia. Spain’s LNG imports hit 29.5 BCM in 2022, with 5.2BCM from Russia. When taking 2022 figures as comparison, France and Belgium have increased the import of Russian LNG by 58%, followed by Spain showing a 50% increase. The only one cutting Russian LNG imports dramatically is the UK, as the latter decided in April 2022 to halt Russian gas imports. In 2022 tree countries started to import Russian LNG, Greece, Turkey and Italy.

The above painted picture is rather a bleak one, but threats are emerging also on other levels. China and India are back in the market for LNG again. Even that total LNG imports of Europe in 2023 are not yet directly threatened, or a new energy crisis is imminent, renewed market pressure is to be expected. Asian tigers are back with a vengeance, and will be pushing some European parties out of the market. As long as most Europeans are betting on a mild winter scenario and lower demand, which is causing already economic hardship and destruction of industrial capacity, Brussels and its compatriots will be only hit the spot markets. Asian parties however are going for the real approach, long-term contracts which will be enticing enough for even US LNG producers to turn the bow of their vessels to go West. If all of this is going to materialize further, the IEEFA report could be even optimistic, as less LNG volumes would be hitting European shores very soon. Too expect that LNG regassification plants or RFSUs could be used for green hydrogen imports before 2030 is really believing in miracles, which never ever happen in hydrocarbon or energy markets.