The European Union could take advantage of a massive boom in liquefied natural gas (LNG) exports over the next five years, coupled with low global gas demand and prices, the International Energy Agency (IEA) has said.
Europe is in a strong position to benefit from weak demand from key LNG buyers such as Japan and Korea at a time when exports are expected to increase substantially, creating an oversupply in the market.
The EU could benefit from the oversupply, and is already talking countries such as Canada, the US, Australia, Japan, Nigeria and Algeria about importing LNG.
“We are at the start of a new chapter in European gas markets,” said IEA executive director Fatih Birol yesterday (16 June).
The European Commission, which in February outlined plans to boost LNG imports to the bloc by improving interconnections, building new hubs and infrastructure.
That policy is driven by efforts under the Energy Union strategy to bolster the bloc’s resistance to shortages and lessen its dependence on Russian gas. The Ukraine crisis highlighted the Kremlin’s willingness to use energy supplies as a political weapon.
Increasing the bloc’s LNG utilisation rate, which stands at just 20%, would make it less dependent on such unreliable suppliers, according to the Commission.
EU Climate Commissioner Miguel Arias Cañete said, “The prospect of an expansion of LNG in global supply over the next few years presents a major opportunity for the EU, particularly when it comes to gas security and resilience.
“For a security of supply reason it is crucial to develop access to a diverse range of energy sources, and the availability of LNG could make a major contribution in this regard,” he said, “but LNG can also bring benefits in terms of competitiveness, as markets become exposed to greater competitive challenges from international suppliers.”
“We see massive quantities of LNG exports coming on line while, despite lower gas prices, demand continues to soften in traditional markets,” said IEA executive director Fatih Birol today (16 June).
“These contradictory trends will both impact trade and keep spot gas prices under pressure,” he added at the launch of the IEA’s annual Medium-Term Gas Market Report.
The IEA is an international agency of 29 member countries, that focuses on energy security, economic development, environmental awareness and other issues.
Cheaper coal and strong renewables growth had stopped greater growth in gas demand in the power sector, it said.
European Union countries will be obliged to help power households and social services such as healthcare in neighbouring member states in case of severe shortages, under legislation to be put forward by the European Commission next week.
LNG exports ramping up
Between 2015 and 2021, liquefaction capacity will increase by 45%, mostly from the United States and Australia, the IEA said. By 2021, Australia will rival Qatar as the world’s largest LNG exporter and the US will not be far behind.
“Unwanted” LNG supplies will look for a home in Europe, due to the flexibility of its gas system and well-developed spot markets, the IEA said.
As a result, intense competition will develop among producers to retain or gain access to European customers, it added.
Gas production in the EU is declining, which makes increasing imports necessary, the Commission said at the launch of its LNG strategy in February. The EU already imports more than half its energy every year.
Birol warned of possible risks to the supplies. More LNG export capacity went offline during the past five years due to technical and security issues. Such problems could get worse with low oil and gas prices, he said.
Global gas demand is expected to rise 1.5% over the next five years, compared to the 2% predicted last year for the same period. Birol said that there was less demand for all polluting fossil fuels, including gas.
Last December’s landmark deal in Paris to cap global warming at the UN Climate Change Conference should also drive weaker energy intensity in the world economy.
World governments today (12 December) agreed a historic international agreement to fight global warming at the UN Climate Change Conference (COP21) in Paris.
The IEA said that as demand for coal and oil weakens, the share of gas in the energy mix worldwide is expected to rise modestly by 2021.
Natural gas is touted by industry and the Commission as a “bridge fuel” on the EU’s path to a low carbon future.
But environmental groups have warned that boosting LNG imports to the EU will encourage climate-warming fracking in countries such as the US. Almost half (47%) of natural gas produced in the US is fracked.
Antoine Simon, of Friends of the Earth Europe, said that the gas package had given the US the “green light” to export fracked gas to the EU.
LNG is also typically transported by ships. International shipping was one sector not covered by the Paris Agreement. NGO Transport & Environment has warned that without shipping emissions being cut, the global warming cap will be breached.
EXCLUSIVE / The European Commission’s plan to boost imports of liquefied natural gas (LNG) into the EU has raised fears that it will encourage climate-warming fracking in countries such as the United States.
“The IEA shows that gas has an essential role to play in the energy mix while being part of the solution to the climate challenge, something the industry is very much in line with, ” said Alessandro Torello, of the International Association of Oil and Gas Producers.
“With the recent publication of its gas package, the European Commission has shown that – although some issues remain – it is also now starting to give gas the strategic importance it deserves.”
But Jonathan Gaventa, director of environmental think tank E3G, said, “Gas is cheap – and yet global gas demand continues to weaken. This points to a structural shift in gas demand rather than normal market volatility.
“Gas competes not only against coal as in the past, but also against low cost efficiency and renewables. Combined with global economic shifts, this means that the golden age of gas previously forecast simply hasn’t materialised.”
For the tenth year in a row, EU states imported half of their energy needs in 2014. A third of their gas imports come from Russia alone and some newer eastern members are almost entirely reliant on Moscow.
The Energy Security Package, launched on 10 February, builds on the EU’s Energy Union strategy, which aimed to bolster the bloc’s resistance to shortages and its fight against climate change.
European Union countries will be obliged to help power households and social services such as healthcare in neighbouring member states in case of severe shortages, and to boost LNG imports.
It also includes measures to vet intergovernmental energy agreements and commercial contracts to ensure compliance with EU law and Energy Union goals – a response to controversies over pipeline projects like South Stream and Nord Stream 2.