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Europe wants gas optionality even as it advances fossil fuel reduction goals

Europe’s aggressive carbon emissions reduction goals provide a stable future for natural gas demand across the Continent rather than act as a deterrent because of fuel-diversification efforts in many countries, a European Commission official said Wednesday in Houston.

The comments at the annual CERAWeek by IHS Markit conference came as trans-Atlantic energy leaders debated the path for LNG versus pipeline gas imports.

The expectation of further growth in US LNG exports has given buyers in Europe that want to reduce their reliance on Russian pipeline gas a viable alternative. Market forces have also been at play, driving new trade flows to Europe. US LNG export volumes delivered to Europe outpaced the amount shipped to East Asia in December and January, the first time that occurred for two months in a row since American exports of LNG from the US Gulf Coast began in 2016.

“It’s true we have pretty ambitious targets in terms of a gradual decarbonization of the energy system,” said Paula Pinho, head of the European Commission’s policy coordination unit. “Thanks to those targets, paradoxically, there is a future for gas in Europe. It’s still a pretty fair share of the energy mix.”

Pinho said domestic gas production has gone down much faster than demand.

“So, this ironically has led to the fact that last year we imported more gas than in previous years,” she said. “We’re looking at diversification, becoming less dependent on single suppliers.”

Paul Corcoran, chief financial officer of Gazprom’s Nord Stream 2 gas pipeline project that would run across the Baltic Sea to connect Russia and Germany, said during the panel discussion with Pinho that the recent surge in US LNG deliveries to Europe reflects lower Asian prices and higher shipping costs to that part of the world.

By the same token, Russian pipeline gas can be offered to European consumers at a very cost-effective rate, he said.

“It’s on the one hand the advantage that Europe has and the disadvantage Europe has,” he said. “The good thing is the competition in Europe, and it would be a good thing for European consumers if there was a race to the bottom.”

The pipeline project has faced intense criticism by the Trump administration in the US, as the American government pushes LNG exports and worries about Russian influence abroad. During a ministerial dialogue at the conference Monday with officials from Poland, US Energy Secretary Rick Perry described the pipeline as “more of a political” than economic project.

Corcoran said Wednesday there is room in Europe for both supplies of gas to co-exist.

“It’s unfortunate that both in Europe and also now in the US, Nord Stream 2 is used by politicians for their own political, local, international goals,” Corcoran said.
Source: Platts

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