Europe is tomorrow’s LNG battleground, predicts OIES
New LNG exports from the US and Australia will displace Middle East supply that will then target high-value markets such as Latin America and Europe – making Europe, in particular, “a future battleground for LNG”, a leading analyst has predicted.
Oxford Institute of Energy Studies (OIES) consultant and Pavilion non-executive director David Ledesma says huge additional global supply of LNG presents an opportunity as new import markets tap cheap gas – but also a challenge to companies that don’t evolve to reflect a more flexible LNG market in which 40-50 per cent of global volumes are traded as short-term or spot cargoes.
Addressing International Petroleum Week (IPW) in London this week, Mr Ledesma said the five confirmed US projects will bring 60 mta to market and Australia will add 62 mta, most of it contracted to Asia under term contracts. However, with LNG demand stagnant for major Asian importers Japan and South Korea and slowing in China, the race is on between producers of unfixed volumes or whose supply contracts have expired work to secure new buyers.
Europe will emerge as a key market, Mr Ledesma believes – but it may not be an easy one for producers to tap. Regional gas demand has fallen 19 per cent, he said and the continent’s existing 145 mta import capacity is 22 per cent under-utilised. Regional producers Russia and Norway will play a critical role in shaping European LNG demand.
Mr Ledesma said that although low oil prices present a barrier to new final investment decisions this year, a 55 per cent surge in global LNG production will nevertheless generate some 2,100 cargoes a year by 2018-2019.