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Long-term gas contract expiries open opportunities for new LNG players: IEA

The expiry in the coming years of long-term European gas supply contracts will provide opportunities for new players — especially from the LNG sector — to enter the European market, a senior official from the International Energy Agency said Sept. 29.

Speaking at S&P Global Platts European Gas and LNG Virtual Conference, IEA Senior Gas Analyst Peter Zeniewski also said Europe was set to become increasingly import-dependent as domestic production continues to decline.

“The growing import requirements will be interesting to see in the context of expiring long-term supply contracts,” Zeniewski said. “That creates market opportunities for new players, and emerging suppliers, especially LNG [players].”

Zeniewski said the European Commission in particular had made an effort to further liberalize European gas markets and make LNG regasification capacity available to a “broad spectrum of players.”

“We’ve got portfolio players coming in, and Asian utilities striking partnerships with European utilities,” he said, pointing to these as examples of changing market dynamics.

S&P Global Platts Analytics analyst Samer Mosis also told the conference that the global market too was set for a shift as long-term Qatari LNG contracts expire over the coming years.

Mosis said Qatar’s uncontracted position was set to grow sharply. “We expect to see upwards of 50 million mt/year of uncontracted capacity on their books over the next five years,” Mosis said.

Short-term dynamics

In the short term, European gas demand has recovered well from the lows triggered by the coronavirus-related economic slowdown, the conference heard.

The IEA’s Zeniewski said the demand recovery since June had been driven by lower nuclear output and rising carbon prices, which provided additional support to switching to gas, particularly in markets like Germany.

He said the year-on-year decline in European gas demand had recovered to -5% by the end of August.

That was in line with an estimate from Anouk Honore, analyst at the Oxford Institute for Energy Studies, who told the conference European gas demand was down by 6% in the January-August period, or around 18 Bcm, year on year.

“In the short term, much will depend on the speed and scale of economic recovery, which is still pretty much uncertain,” Honore said.

She added that temperatures over the winter would have a demand impact, pointing to fluctuations in demand of 20-30 Bcm between a mild and cold winter in Europe.

Uniper Chief Commercial Officer Niek den Hollander also said the rate of recovery from COVID-19, as well as Asian demand trends, would be important for Europe.

“As the gas market is truly a global market, the duration of the COVID-19 impact of a region outside of Europe will have repercussions on European gas prices,” den Hollander said.

“Particularly Asia, which is expected to be a driver of additional gas demand in the years to come,” he said. “If that expectation falls short due to a longer-than-expected recovery, European gas markets will reflect this.”

The IEA’s Zeniewski said European gas demand is expected to recover close to pre-crisis levels and to remain flat over the next five years.

He said there was some upside to demand as nuclear and coal come off the system, creating “space for gas to grow.”

But, he said, there are weakening longer-term fundamentals for gas, with the growth in renewables “obviating the need for new thermal capacity in Europe which caps the amount of gas that can step in, even with coal and nuclear retirements.”

Supply expectations

Zeniewski also said Russia would likely continue to dominate European supply in the coming years, forecasting exports of 170-200 Bcm/year supplied through a combination of long-term contracts, short-term auctions, and sales through the European hubs.

He said Norwegian exports would remain broadly stable, with Norway’s flexible fields such as Troll and Oseberg set to play a key role in providing flexibility to the European gas market.

This is increasingly important, he said, given the decline in output from swing producing assets such as the giant Groningen field onshore the Netherlands.

Europe is also expected to continue to play a key balancing role in the global LNG market, he said, given its spare regasification capacity and ample storage.

“LNG [to Europe] will probably oscillate in a range of 90-110 Bcm/year,” he said.
Source: Platts

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