The export capacity of liquefied natural gas in the USA will presumably have increased by 2020 up to 96 billion cubic meters per year. At the same time export of gas to the EU states will not increase 50% or will amount to approximately 45-50 billion cubic meters per year.
According to Martin Fraenkel, the President of «S&P Global Platts» analytical agency, during 2016-2017 consumption of liquefied natural gas in the EU rose from 40,9 to 47,4 billion cubic meters (on June 14, 2018 in London). The liquefied gas share within the scope of natural gas import in EU ranks the third after the Russian Federation and Norway.
According to the expert, the dynamics of liquefied natural gas development in the EU is held back by the low cost of piped gas.
M. Fraenkel reported that as a result of cold winter of 2017-2018 the stocks of liquefied natural gas in the EU reduced substantively. US traders expected that during the summer supplies of American liquefied natural gas to the EU states would increase substantively.
Among candidates of liquefied natural gas suppliers to the EU experts named American export liquefied natural gas terminals «Cheniere Sabine Pass» and «Cove Point». However, by the end of June of the following year despite the fact that liquefied natural gas prices at Asian and EU spot markets became almost equal (Picture 1), growth of liquefied natural gas import in the EU did not take place.
The representative of «S&P Global Platts» considers that accounting price of American liquefied natural gas in the EU in June of current year constitutes approximately 260 US dollars per 1000 of cubic meters. This is less than the spot market price of gas in «Italian PSV», the Italian trade hub, «Spanish PBV» or «French TRS», where the gas price constitutes 283 US dollars per 1000 of cubic meters. However, the price of American liquefied natural gas is higher than the gas spot market price in the UK, «UK NBP» and the Netherlands, «Dutch TTF», where the gas price at the moment is about 248 US dollars per cubic meter. From the beginning of this year only three US tankers filled with liquefied natural gas entered the EU: two of them entered the UK in March and April and one entered the Netherlands in April.
M. Fraenkel notes that from February 2016 to May 2018 the US exported 363 tankers of liquefied natural gas to 26 countries of the world (Picture 2).
45 % of gas was exported to Asia, 34 % – to the countries of Latin America, 10% is exported to the Near East countries and only 11% – to the EU countries. Therefore, the EU countries do not defy price competition for American liquefied natural gas with the Asian and Latin American market gas at present.
Thus, liquefied natural gas at the Asian market constitutes 318 US dollars per 1000 cubic meters at the moment.
Speaking of liquefied natural gas capacities export from the USA, M. Fraenkel noted that by the end of 2019 the facilities of the USA will have increased to 271, 8 billion cubic meters of gas per day or about 96 billion cubic meters of gas per year (Picture 3).
Consequently, the USA is going to become the third biggest liquefied natural gas producer after Quatar and Australia. The expert is convinced that since 2020 the EU’s share will constitute not less than 50% of liquefied natural gas export from the USA or approximately 50 billion cubic meters of gas per year.
M. Fraenkel mentioned that within the last two years the European energy market has undergone tangible structure changes which are leading to an increase of gas consumption in general energy balance of the European Union.
In such a way, during 2014-2016 capacities of gas consumption in the EU rose by 52 billion cubic meters (or 11%). The key reason of increase of gas demand in the EU became the reduction of coal-fueled energy production from 190 to 156, 6 gigawatt during 2010-2017.
Besides that, further domestic gas extraction in the EU will decline. Thus, gas extraction in the Netherlands declined from 45 to 12 billion cubic meters per year during 2015-2017. Regulator of energy market of the Netherlands announced that within the region of the major gas fields «Groningen» by the end of 2030 gas extraction will be completely stopped. This will cause sufficient deficiency of natural gas at the EU consumption market.
Taking into consideration current situation at the EU gas market and flexibility of Russian «Gazprom» in cooperation with European clients, M. Fraenkel predicts further growth of Russian gas export capacities to the EU. In such a way, in 2017 this indicator has already increased by 8% and approached its historical maximum at 193, 9 billion cubic meters of gas per year.
Speaking of development perspectives of American liquefied natural gas export to the EU, the expert noted that the EU is nowadays one of several regions where all conditions for effective competition between liquefied natural and piped gas are created.
The established infrastructure of liquefied natural gas regasification in the EU is still occupied at full-load. Therefore, taking into account predicted growth of gas import in the EU and price volatility at core trade platforms in the EU, gas export capacities from the USA to the EU will remain at the level of not less than 50 billion cubic meters of gas per year in the medium term.
As V. Nemov, the deputy director of «Gazprom Export» treaties department mentioned, likewise Saudi Arabia, possessing substantial powers in fast build-up of oil extraction, gas business in the Russian Federation is capable of building up of its own gas extraction for a short period of time at the level of 150-170 billion of cubic meters of gas per year compared to current volumes of gas extraction. Such flexibility allows the Russian Federation to apply different pricing strategies at the EU market. Nowadays the Russian Federation is focused on maximization of gas export capacities to the EU countries and barring increase of shares of other gas exporters at the EU market.
Nemov supposed that supplies of Russian gas to China may be not as large as it was expected. Therefore, the EU will further remain the key market for Russian gas export. It is well recognized in the Russian Federation that in the medium term domestic extraction of gas in the EU will reduce dramatically.
At the moment the question is, what will be these gas capacities substituted with: piped gas from the Russian Federation or liquefied natural gas from the USA, Qatar or Australia? V. Nemov underlines that «Gazprom» expects a dramatic growth of gas demand in the EU in 2020. As he says, «Gazprom» is already very competitive in North-Western Europe and nowadays the company is interested in building up gas export to the Eastern European states.
In such a way, in response to the announcement of Romanian regulator of energy market «ANRE» regarding the readiness of state to refrain from gas export from the Russian Federation, experts from «Gazprom» are learning possibilities of building up supplies of Russian gas in Romania. At the same time as V. Nemov noted, «Gazprom» is ready to offer Bucharest such gas price that is lower than its cost price of extraction in Romania. Speaking of Lithuania, V. Nemov indicated that nowadays the possibility of 23 % discount for Russian gas is considered, which will make it substantively more attractive than American liquefied natural gas.
Thus, the EU’s share consists of only 11% of aggregate export of American liquefied natural gas. In the short term, (by 2020) export prospects of liquefied natural gas to the US will increase up to 96 billion cubic meters per year, and at the same time, export of this gas to the EU states will not increase 50% or approximately 40-50 billion cubic meters per year.
In an attempt to deter the growth of share of gas export from the USA at the EU gas market, Russian «Gazprom» demonstrates flexible discount policy and benefits for North-Western Europe and aims to strengthen its own influence at the gas markets of Eastern European states. As a result the share of the Russian Federation at the EU gas market keeps on growing; in 2017 export of Russian gas in the EU grew by 8% (to 193, 9 billion cubic meters of gas per year).
Taking into account predicted reduction of domestic gas extraction in the EU and the policy of the European Commission aimed at reduction of coal use in energy production, «Gazprom» predicts substantial growth of gas consumption capacities in the EU in 2020. This means that during the term of 5 years capacities of Russian gas consumption in the EU will probably increase to 230-450 billion cubic meters per year.