Europe seen taking the limelight from China's booming LNG demand

By Anna Shiryaevskaya and Mathew Carr on 5/15/2018

LONDON (Bloomberg) -- Europe is starting to steal some of the limelight from China’s booming liquefied natural gas demand as imports pick up after several lackluster years.

Europe and China will be comparable in significance as importing regions in the coming years, Cheniere Energy Inc. said, citing data from Wood Mackenzie Ltd. That follows “absolutely phenomenal” growth in China last year, Andrew Walker, V.P. for strategy at the company that pioneered the transformation of the U.S. shale boom into global exports, said in Amsterdam.

China’s LNG consumption leapt 42% last year to almost match European imports, which climbed 20%. Whereas the Asian nation needs the fuel mostly to replace dirtier coal, Europe needs it to offset rapidly declining domestic production.

The re-emergence of Europe as an LNG market has caught the eye of the coming wave of U.S. fuel producers. Venture Global LNG, Inc., which is developing export terminals in Louisiana, sees Europe as “one of the biggest surprises,” it said at the Flame conference in Amsterdam.

Europe’s location may give it an edge over generally higher-priced markets in Asia when it comes to attracting the increasing volumes produced in the Atlantic. North America and Russia were seen providing most of the new supply from 2025 to 2030, according to a poll at Flame.

Demand growth in China and South Korea, the second and third biggest LNG importers, will cool during the rest of this year after continued expansion through April, according to Cedigaz, a Paris-based industry research group. With less appetite also from Japan, the biggest buyer, northern Europe will step in to balance the markets, Cedigaz’s secretary general Geoffroy Hureau said at Flame.

UK supply this summer may be low but the Netherlands will see a pick up as it rushes to offset lower own production and higher demand for storage, Nick Boyes, a senior gas and LNG analyst at Axpo Trading AG, said by email. France will also need more for storage, he said.

The Netherlands is taking the lead also because of lack of storage demand in Britain after the closure of the Rough facility. The Dutch market is so hot that the country’s Title Transfer Facility hub will be the main reference for LNG trading in the next three to four months, Ruben Tomas, lead LNG trader at Germany’s Uniper SE’s commodity unit, said on a panel.

“We see a well-supplied Atlantic basin this summer” as Russia’s Yamal LNG and U.S. projects fill the market with cargoes, Axpo’s Boyes said. Trinidad & Tobago and Angola are also boosting supply, while demand in southern Europe and Egypt is declining, he said.

While the usage rate of LNG terminals in Europe was just 23% last year, things are looking up, according to Arturo Gallego Diaz, head of LNG trading and operations at Centrica Plc.

“There are more and more people looking at northwest Europe as an opportunity to deliver volumes that are produced in the Atlantic basin,” he said.

Declining production in the North Sea and the Dutch Groningen field as well as the closing of coal plants in Europe have a “big impact on LNG production” and are “a very big demand surprise,” Venture Global LNG Chief Commercial Officer Tom Earl said at Flame. The company recently signed a supply contract with Portugal’s Galp Energia SGPS SA.

'Fairly stable'

Creditworthy counterparts, liquid hubs and physical demand help make Europe attractive for LNG, according to Gallego Diaz.

Uniper expects “fairly stable” demand for gas in Europe, while seeing growth in gas-to-power and potentially transport, said Gregor Pett, executive V.P. for market analytics.

Russia, Europe’s biggest gas supplier, sees higher demand for its pipeline gas, undermining the region’s efforts at diversification, according to Sergei Komlev, head of the contract structuring and price formation directorate at Gazprom PJSC’s export unit.

While Russia will continue to pipe natural gas to Europe in competition with LNG, both can co-exist, the Centrica and Uniper executives said.

“I don’t think they exclude each other,” Uniper’s Pett said. “Everyone has a place.”

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