The European Gas Market and the Outlook for LNG Demand in Europe （欧州ガス市場とLNG需要見通し）

JOGMEC K Y M C JOGMEC London Office Oil & Gas Researcher Sangeeta Jordan アナリシス The European gas market and the outlook for LNG demand in Europe （欧州ガス市場とLNG需要見通し） Introduction Gas is a key source of energy in Europe’s ＊1 energy supply mix. Gas is supplied to Europe either via pipeline as natural gas or as frozen gas, liquefied natural gas（LNG）, which is regasified in an LNG import（or regasification）terminal. Europe is expected to absorb the LNG surplus coming onto the market in the second half of the 2010s and early 2020s. However the region is facing many uncertainties. This paper focuses on Europe’s gas supply and demand dynamics. On the supply side, we will examine Europe’s domestic gas production, Europe’s key pipeline suppliers and the likelihood of new pipeline suppliers to Europe emerging over the next decade. In the second half of the paper, we will cover the demand side. We will focus on the sectors where demand uptake has occurred or is predicted and will show how gas demand growth in these sectors is determined to a large extent by government policies. Finally, the outlook for LNG growth in gas demand in the European market will be discussed. 1. Europe as the residual market for LNG In 2016, Europe’s net imports of LNG totalled 51 160 bcm of additional LNG with the existing bcm, which represented 15.3 per cent of the global infrastructure. However, there is a regional mismatch： LNG market（GIINL, 2017）. Although LNG imports to regasification capacity is concentrated in Western Europe slowed down in the second half of 2016, Europe, along the Mediterranean and Atlantic Coasts Europe is still considered to be a significant market for while there is limited access to LNG in central and LNG. In 2015, eleven countries in Europe imported southeast Europe, due to the lack of LNG regasification LNG. Currently Europe has 29 LNG import terminals capacity and interconnectors. Weak interconnections in operation, with a total LNG regasification capacity of between EU countries are a major obstacle preventing 208 bcm（Standaert, 2016）. The LNG import terminals LNG from flowing across the EU. Notwithstanding the are mainly large scale, but Floating Storage underutilization rate, 33 additional terminals are either Regasification Units（FSRUs）and small scale terminals currently under construction or planned（Table 1）. are playing an increasingly important role in LNG For example, Italy’s New National Energy Strategy regasification（Table 1）. （NES）lays out plans to develop an additional LNG As can be seen from the above, Europe currently terminal and increase storage capacity with the has an oversupply of regasification capacity and objective of increasing the liquidity of the Italian theoretically the region could receive approximately market and diversifying the country’s sources of 19 石油・天然ガスレビュー JOGMEC K Y M C アナリシス supply（Favasuli, 2017）. Adding additional regasification Table1 Number of LNG import terminals per type capacity while terminals are practically idle has been criticised by many（Walstad, 2016）（LNG World News, Type Operational Under Construction Planned 2016）. Nevertheless, it is suggested that the mere Large scale 24 3 23 FSRUs and others 2 0 11 availability of a regasification terminal may enhance Small-scale 4 4 4 the importer’s competitive position vis-a-vis pipeline Total 29 6 27 gas suppliers. It is hoped that the construction of Note：Figures may not add up due to overlap in categories. terminals in Central and Eastern European countries Source：Gas Infrastructure Europe could reduce dependency of these countries on Russian reopened in Europe in anticipation of the growing role gas supplies and improve price competition. LNG LNG will play in Europe’s energy supply（Financial terminals are also being expanded, constructed or Times, 2017）. 2. Europe’s indigenous gas production The overall trend for European domestic gas natural gas production in 2012. With the exception of production is downwards. European gas production has Norway, the remaining European countries are faced fallen by 41% in the last decade and the BP Energy with declining domestic gas production. Outlook predicts domestic gas output to fall by 3.2% Norway’s production is expected to plateau and then per annum until 2035 as existing fields mature and are slowly decline post-2020. In the UK, gas production is not replaced（BP, 2017）. In 2014, European domestic expected to decline, though the new supply from the gas production stood at 250 bcm, which was Culzean and Platypus fields due to come online from approximately 50 per cent of Europe’s gas 2019 will slow the rate of decline. Meanwhile in the requirements. However in 2016, according to Eurostat Netherlands, the Dutch government has been steadily data, European domestic production only accounted for reducing output from Europe’s largest field in approximately 30 percent of Europe’s gas supply. Groningen as a result of earthquakes and seismic Norway, the Netherlands and the United Kingdom are tremors. Currently production at Groningen has been the three largest producers of natural gas in Europe, capped to 24 bcm per annum（Reuters, 2016）, which is accounting for more than 80% of the region’s total more than halving the production from its 2014 peak. 3. Prospects for unconventional gas in Europe As a result of the decline in domestic conventional long term, with estimates of only 0.5 bcm in output by gas production, European countries have made 2030（Wood Mackenzie, 2016）. Unconventional gas increasing recourse to unconventional gas production production was touted as being a“game changer” for in an attempt to increase energy security. However, Poland, as the estimated volume of 768 bcm of shale the prospects for unconventional gas production in reserves was considered to be sufficient to enable the Europe are not bright. According to Wood Mackenzie, country to realize its hopes of becoming energy the contribution of European shale gas production to independent of Russia（Tallents, 2011）. However after the European supply mix will not be significant in the drilling 70 wells, commercial gas volumes were not 2017.5 Vol.51 No.3 20 JOGMEC K Y M C The European gas market and the outlook for LNG demand in Europe recovered and key international players ended up increasingly important role in supplying the European exiting shale gas exploration.＊2 Other countries in the gas market（EIA, 2016）. EU have imposed outright bans or moratoria on drilling Before we examine the outlook for LNG in Europe, and fracking.＊3 we need to look at Europe’s current pipeline suppliers The future of unconventional gas production in the and the potential for additional gas supplies from other UK is still uncertain. Geological surveys suggest that pipeline suppliers. the UK has significant shale gas reserves（Delebarre et In 2015, approximately 87% of imported gas to al, 2017）and the UK government’s support for Europe was pipeline gas while LNG represented the unconventional gas production is strong（Ozawa, remaining 13%（European Commission, 2015）. In 2015）. Currently shale gas exploration is concentrated 2015, pipeline gas was supplied to Europe from Russia in three areas of the UK：Cheshire, East Midlands and （40%）, Norway（37%）, Algeria（7%）and Libya（2%） Yorkshire. Proponents of fracking argue that shale gas （European Commission, 2015）. The top three pipe has the potential to provide the UK with greater suppliers of gas to Europe ramped up gas supplies in energy security, economic growth and job creation 2016 in an attempt to either maintain or increase opportunities. In an attempt to“revolutionise UK market share（Platts, 2017）. In 2016 Russia increased manufacturing”＊4 and to create energy security, the shipments to Europe and Turkey with exports petrochemical company, INEOS, has recently expanded reaching an estimated 185 bcm. Similarly, Norway in its shale gas licence portfolio, enabling the company to 2016 exported close to its record high from 2015 of carry out exploration over approximately one million 115 bcm. In an interview with Platts, Norway’s acres（400,000 hectares）. Notwithstanding INEOS’ energy minister, Tord Lien, stated that“we have a large scale acquisition of shale licenses, there is very good understanding on the next 20 years where significant scepticism among many energy companies we expect to export on average 100 bcm per year. about the prospects for shale gas production in the UK. That is less than today, but it’s still high. It’s going to Concerns about the commercial viability of shale gas in still be more than 20% of the EU’s gas consumption.” the UK have been heightened after Engie divested all Gas exports from Algeria grew by 13 bcm in 2016 its shale gas assets in the UK（Ward, 2017）. Further, from 38 bcm in 2015.＊5 However, in the longer term, the considerable opposition to fracking by various Wood Mackenzie questions Norway’s ability to segments of the population is perceived to be a major maintain export levels at 100 bcm until 2035. obstacle to the development of unconventional gas Similarly, post 2020, Wood Mackenzie raises concerns production in the UK. It is widely considered that whether Algeria will be able to maintain its present unconventional gas production will not contribute export levels as output from maturing fields decline significantly to UK’s energy mix. （Wood Mackenzie, 2016）. Thus, it can be seen that With declining domestic production and an uncertain there is uncertainty over how much gas Norway, future for unconventional gas production, gas imports Algeria and Libya will be able to supply Europe in the will rise in Europe. However, the volume, form and future, though Russia’s ability to ramp up supplies is source of the additional imports remains unclear.

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