With an early winter expected in 2021, energy suppliers have been moving to secure sufficient stock of gas supply for the season. After a cold winter in 2020 and a hot summer through mid-2021, stocks of stored natural gas are at a 10-year low in Europe. Despite high prices for natural gas around the world, demand for reliable supply to the continent has skyrocketed and shows no sign of slowing down.

To Pipe or Not to Pipe

Russia’s Nord Stream 2 pipeline is due to begin operations at the end of the year, opening up a potential feed of 55 billion cubic metres annually into Europe. While this represents direct competition for the LNG import market, increasing political tensions have dampened enthusiasm for Russian gas as a long-term solution. Europe already relies heavily on Russian pipeline gas, which comprises roughly 40% of all EU gas, while LNG represented 27% of EU gas in 2019. LNG’s market share is growing, however, and is expected to reach a capacity of 376bcmpa in 2026, up from 255bcmpa in 2020.

The good news is, there is still plenty of room for import growth even before these new sites come into operation. Utilisation rates in Europe are generally much poorer than those found in Asia, with Spain, despite having the highest total imports in 2020 at 22Mt, only utilising 35% of the national capacity. This significant overcapacity for LNG regasification has attracted political detractors, but the government seems to be proceeding with expansions regardless, perhaps aiming to become one of the major energy supply hubs for Europe in the coming decades.

Location, Location, Location

The majority of new regasification development under consideration or moving to construction in Europe is captured in the European Union, but it is generally widely spread out, with 2-3Mt of new regasification import capacity seen in five nations, and with Spain looking for slightly higher capacity.

Governmental support has been increasingly enthusiastic in most countries, but funding plants is generally an expensive venture, even for the significantly cheaper regasification terminals (as opposed to liquefaction). Private investment has ultimately led the way in Germany at the Brunsbüttel LNG terminal, Ireland at Shannon LNG and Finland’s Hamina LNG, while public support has dominated Russian development at Yamal LNG (now operational) and Arctic LNG liquefaction terminals and has had a significant hand in Spain’s Enagas’ regasification development.

The Chosen Few

With political tensions on the rise with Russia, the LNG market is expected to grow. Europe has historically purchased LNG from the Middle East, primarily Qatar, and the USA. While some purchases are made in Russia, pipeline gas has been simpler and cheaper. With the massive investment the US has been funnelling into LNG liquefaction, the primary market will shift to favour the US. Qatar will likely retain a market share, but it is expected to supply India along with Australia and Malaysia as the Indian market roars onto the scene towards the end of the decade.

A large portion of the new US liquefaction infrastructure is based in Louisiana, taking advantage of the nearby Henry Hub, significant local gas reserves and easy oceangoing vessel access to set up several terminals in the Calcasieu region. While Cameron LNG was recently delayed to the June quarter of 2026, Calcasieu Pass is due for commercial operations in the middle of 2022, and the shipping market is likely to favour easy access to the European market over transportation fees for the Panama Canal.

Australia and Malaysia are generally regarded as too distant for cost-efficient transport to the European markets. Canadian LNG developments have targeted the west coast of the country for the easy access to ravenous Asian markets, and they suffer similar cost issues due to travel distance.

Looking Ahead

Europe is a rapidly growing market for LNG imports. Recent political tensions with Russia have only increased the movement towards LNG, though the market will typically take several years to move on any proposed investment. The continent is hungry for emissions-friendly energy, and with recent public fears around nuclear power, the increasing disillusionment with coal and the inherent restrictions of most renewables, LNG stands ready to fulfill the transitional need.