Ample stockpiles of gas globally mean that Europe has finally become a key market for LNG, delegates were told at the European Gas Conference (EGC) in Vienna.
Rather than pessimistically being described as a dumping ground for cheap LNG, Energy Council members struck a more optimistic tone.
Panellists described how the LNG “wave that has arrived” is heralding a final shift away from coal in the EU, which will lead to the final closure of coal-based power generation on the continent.
The market fundamentals that Europe is benefiting from are set to continue long into the 2020s as the G-3 gas powers – Russia, Qatar, and the US fight for market share.
Five key takeaways from the European Gas Conference hosted by the Energy Council in Vienna:
- In the short-term, the gas market will remain oversupplied beyond 2025, according to the majority of members at EGC. A global oversupply of LNG continues to build, and with the onset of start-up export projects in Australia, the US and Africa are not expecting changes in market fundamentals throughout 2020. The sheer volumes of supply mean that even if a couple of new LNG trains didn’t hit FID, it would do little to shift global prices.
- LNG prices, in particular, are finding it hard to stomach warm winter weather in Asia. Spot delivery prices to North Asia are tracking towards new lows this summer with over-supply continuing. In Europe, a similar story has seen prices in major gas hubs hit 1999 lows supported by the risk of disruption of Russian gas being averted.
- This trend has seen US exports continuing to see renewed pressure on margins. That being the case, the European gas prices as represented by TTF and NBP premium over Henry Hub are still supporting exports to Europe. The US margins into Western Europe will continue to be a key barometer for sellers. However, the likes of Pavilion Energy cancelling cargoes from the United States is a sure sign of global pressure on exports from the lower 48. US gas prices briefly dipped below $2 per million this month, and some delegates predicted that this may lead to a wave of shut-ins should we see another 40c> drop in Henry Hub.
- Lower short-term prices are increasing demand as we have witnessed with India new-build generation capacity topping nearly 15GW. Continued energy demand will see demand grow as much as 600 (mmty) in the next decade. That consumption will drive long-term capacity building such as the Tellurian Driftwood facility in Louisiana and another dozen export projects being built in the US.
- A call for decarbonisation is a call for gas. It was clear at EGC that gas supports the Green Deal in Europe, but more needs to be done to speed up the continent’s exit from coal. Gas-fired power plants offer the only scaled baseload supply option that is on offer today. Innovation may well come and the industry invests more heavily in this area than any, but until significant technology advances we need a realistic and inclusive energy mix that gas offers.
EGC did leave members pondering some unanswered questions. Will oil-index legacy gas prices continue to stunt growth of gas in Asia? Who of the G-3 gas superpowers will blink first? These are some of the issues that will form the backdrop of the 7th Energy Council APAC Assembly in Singapore this March when the Asian oil and gas market meets to explore the impact on JKM and wider market prices.
Author: Iain Pitt, Founder, Energy Council