Europe’s liquefied natural gas terminals are running at almost full capacity as a record amount of discounted supplies arrive from the US, easing fears about a shut-off in Russian flows, an expert told Al Arabiya.
Speaking on Al Arabiya's Future of Energy program, Ross Wyeno, lead analyst for Americas LNG at S&P Global, said, with Europe pushing to slash Russian gas imports in favor of more LNG, US shipments are providing a welcome relief – but the increase in such imports is stretching the ability of the region’s infrastructure to handle the volumes until more facilities are built.
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“We are already seeing that European regasification capacity has been running near capacity for the last two months,” said Wyeno. “That has created constrained pricing in north west European gas hubs and also creating a dislocation between the European gas price and the global gas price, which are now well separated.”
He continued, “That can be identified in the Platts DES North West European LNG marker which traded at a record 10 dollar per mmbtu discount to the TTF in May. But over the last few days we’ve seen that spread has tightened to closer to about 4 dollars per mmbtu (Metric Million British Thermal Unit), which is suggesting that constrains into Europe maybe easing, although we still think that they lack the necessary regasification capacity to fully replace Russian gas.”
Europe has become the most lucrative LNG market this year amid worries over Russia cutting pipeline supplies to the region.
Meanwhile, muted demand in Asia due to ample stockpiles and COVID-19 outbreaks has weighed on prices there.
That has led to LNG suppliers offering cargoes to Europe at unprecedented discounts to win business, according to traders in the market.
US LNG exports
Wyeno agreed that US exports to Europe have been quite high.
“We’ve seen about 195 million cubic meters per day delivered to Europe, which is an increase of about 74 percent year on year. Now at the same time we’ve seen a massive decline in US LNG deliveries to the ASIA Pacific countries, which have fallen to just 66 million cubic meters per day, down about 47 percent. Now this shift from Asia back to Europe has been extremely notable and has been a key feature of the energy crisis in Europe and has also exemplified the flexibility in US LNG supply,” he said.
“However, over the last month we’ve actually seen cargos start to shift back towards Asia pacific because of regasification constraints in Europe and they are no longer able to take any more gas and we are seeing those large discounts incentivize cargos to again move eastwards.”
Asia, European demand in ‘direct competition’
In the coming months, Wyeno said US LNG shipments between Asian markets and European markets will likely lead to some “direct competition.”
“Certainly, Europe is going to need to continue to bring in spot volumes to meet the short fall in Russian gas, At the same time, most of the Asian buyers still require spot volume. to meet peak winter demand as well,” he said. “Now the extent to which Asia can shed spot LNG demand and replace that with coal, potentially fuel oil and with energy savings is not yet certain. And certainly we’ve seen a large amount of demand response from Asian buyers so far this year, so that level of competition could be less than what we saw last winter. But given colder weather, given any type of demand shock certainly we would see lots of price volatility and direct competition between Europe and Asia for some of those very scarce spot LNG volumes.”
“The big differential between the European and Asian LNG volumes right now is being driven by those capacity constraints at the re-gas terminals in north western Europe. And as those capacity constraints become alleviated which we expect they will over the next couple of years with the addition of a number of new re-gasification facilities across north western Europe those differentials will normalize to simply just transport cost. And so yes we do think that there will be a convergence and then on top of that there will likely be a convergence towards a lower price as global LNG supply responds to this current period of high demand.”
Despite the competition, with the “tremendous amount of gas delivered to Europe currently in 2022”, Wyeno believes the EU will enough regasification capacity to hit its yearly targets.
“We have actually seen many of the European re-gas facilities running above capacity. And as well we have seen capacity expansions added to several facilities across Europe just over the past couple of months. So they have been utilizing their facilities really as much as we could expect. As we get into the summer we may actually see some underutilization at those facilities, at least below capacity, and assuming that Russian gas deliveries from pipeline gas continue at take or pay levels. So there does appear to be enough regasification capacity for 2022 targets but certainly not enough to replace Russian supply yet.”
US LNG capacity ‘very high’
Wyeno said the current capacity utilization rates at US LNG export terminals is “very high.”
“In May we have seen utilizations average around 94 percent of peak observed output,” he said.
To put that into context, he explained, that is about two percent higher than what was recorded a year ago.
“This is despite the fact that we have seen several late season maintenance even rolling off just this past month. June utilization, just for the first few days for this month, have averaged about 97 percent and that is because we have seen major maintenance wrapped up at both Cameron and Freeport (LNG liquefaction-export projects),” Wyeno said.
“Now on top of this, we’re seeing a very strong ramp and a faster than expected ramp at the newest US export facility Calcasieu Pass which we expect to see reach full capacity this summer.”
Wyeno also discussed how pressure is mounting on the natural gas and LNG community to reduce methane emissions – especially in EU countries following the adoption of much tougher greenhouse gas reduction targets of 2030 and the publication of the European Commission’s Methane Strategy.”
Methane emissions of LNG were a major reason why development of US LNG export projects stalled out in 2020 & 2021. Now, he said, the current need to replace Russian gas supply seeming to outweigh European environmental goals it is likely that methane emissions will likely re-emerge as the European energy crisis eases.
“But at the same time the experience of 2020 & 2021 led many US LNG export projects developers to look for ways to solve some of these upstream methane emissions issues and carbon emissions issues,” he said. “So that includes using certified natural gas for feed stock which certifies the gas is coming from a low Methane emissions basin.
“And on top of that adding carbon capture and storage technologies at the liquefaction site to capture other carbon produced in the liquefaction process. So I think the combination of these wo solutions while imperfect could provide the needed leeway for some of these export projects to meet some of the European energy environmental goals down the road.”
Read more:
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