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Europe set for greater competition between pipeline gas, LNG: BP

Europe is likely to see increased competition between pipeline gas supplies and LNG imports in the coming decades while domestic production continues its precipitous decline, BP said in its latest Energy Outlook.

In its annual outlook, BP also said it sees global gas demand growing by 1.7%/year to 2040 under its “Evolving Transition” (ET) scenario to a total of 5.37 Tcm, up from a forecast of 1.6%/year in last year’s report.

BP’s ET scenario is broadly in line with its base-case scenarios in previous reports, which assume that government policies, technology and social preferences continue to evolve in a manner and speed seen over the recent past.

“In the ET scenario, European gas production declines by 40%,” BP said.

Including Norway, gas output is set to drop from around 245 Bcm in 2020 to just 159 Bcm in 2040, it said.

This, BP said, will “cause Europe’s import dependency to increase to around three-quarters in 2040.”

That compares with import dependency of some 50% currently.

“Europe’s existing infrastructure means it has the capacity to increase substantially its imports of either LNG or pipeline gas, especially from Russia,” it said.

BP said there would be greater competition between the two, though the ease of transportation means pipeline gas has a “marked cost advantage” over LNG.


The main constraint on pipeline imports, BP said, is concerns about Europe’s dependency on Russia for gas.

But, it said, the development of a globally integrated gas market eases these concerns, “allowing Russia to increase slightly its share of European gas demand.”

BP also said that Europe would continue to absorb surplus LNG supplies when demand elsewhere weakens.

“Europe remains a key market, both as a ‘balancing market’ for LNG supplies and a key hub of gas-on-gas competition between LNG and pipeline gas,” it said.

As well as Europe, BP highlighted China as the other key center for pipeline gas/LNG competition.

“In China, despite sizeable increases in domestic production, demand growth outstrips supply, causing import dependency to rise to over 40% by 2040,” BP said.

Around half of these additional imports are expected to be met by incremental pipeline capacity from Russia and other CIS countries, and the remainder from LNG.

“As in Europe, as well as pure cost considerations, China’s choice of gas supply may also depend on the energy security implications of different sources of supply,” it said.


Global LNG volumes are set to expand substantially, leading to a more competitive, globally integrated gas market, BP said.

In the ET scenario, LNG trade more than doubles, reaching almost 900 Bcm in 2040 up from around 400 Bcm in 2017.

“Around 25% comes over the next five years so you’ve still got some of that growth spurt coming through,” BP chief economist Spencer Dale said at a briefing in London.

“In terms of who is leading the charge in LNG exports, we see the US and Qatar emerging as the dominant sources,” he said.

Those two countries alone are set to account for around 40% of all LNG exports by 2040, BP said.

Asia remains the dominant market for LNG imports, although the pattern of imports within Asia shifts, with China, India and “Other Asia” overtaking the more established markets of Japan and South Korea, and accounting for around half of all LNG imports by 2040.

“The rapid growth of LNG [is] transforming how natural gas is transported and traded around the globe,” BP CEO Bob Dudley said.

Dale added: “The big point about LNG is that its leading to an integrated gas market the way we have an integrated oil market.”

The precise profile of LNG volume growth will depend on the timing and availability of the new investments needed to finance the considerable expansion.

“The cyclical nature of LNG investments means there is a risk that the development of the LNG market will continue to be associated with periods of volatility,” BP said.
Source: Platts

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