may 2015 · 2016. 3. 9. · wieland thermal solutions, germany, discuss how finned tube technology...
TRANSCRIPT
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CONTENTSISSN 1747-1826
ON THIS MONTH’S COVER
Copyright © Palladian Publications Ltd 2015. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying,
recording or otherwise, without the prior permission of the copyright owner. All views expressed in this journal are those of the respective contributors and are not necessarily the opinions of the publisher, neither do the publishers
endorse any of the claims made in the articles or the advertisements. Printed in the UK.
MAY 2015
18 Opening the doors to LNGIndre Miliniene, SC Klaipėdos Nafta, Lithuania, considers the significance of the country’s first LNG terminal for energy security in the Baltic region.
23 The key to the global gas marketClaudio Rodriguez, Fernando Impuesto and Jesús Gutiérrez, Enagás, Spain, discuss how adapting the country’s regasification plants to market needs will play a key role in the development of an Iberian LNG hub.
28 LNG without limitsStefaan Adriaens, Gate Terminal B.V., the Netherlands, outlines the various options for the supply of LNG in northwest Europe.
33 Downstream LNG developmentsRonald van Selm, Titan LNG B.V., the Netherlands, considers the development of the small scale LNG sector in northwest Europe.
37 Weighing the optionsGrace Quinn, Baringa Partners, UK, puts foward the case for LNG as a fuel of the future.
41 Dash for gas infrastructureRupert Hare, Houlder Ltd, UK, examines recent and future infrastructure developments in the small to mid scale LNG industry.
45 Compatibility mattersRichard Hepworth, Trelleborg Marine Systems, UAE, considers the importance of transfer compatibility in ensuring the principles of safety, efficiency and cost effectiveness in small scale LNG operations.
50 Right first timeGordon Young, Gazprom Marketing & Trading, provides an overview of the company’s first ship-to-ship transfer of LNG at sea.
55 Bigger is betterSimon Bishop, Dunlop Oil & Marine, UK, considers the benefits of a large bore composite hose in ship-to-ship LNG transfer systems.
59 Floating on the horizonRichard Nott, Lloyd’s Register Energy, UK, asks whether natural gas is becoming cleaner, safer, more affordable and easier to obtain.
63 Advanced air coolingNicolas Bariteau, GEA Batignolles Technologies Thermiques S.A.S, France; Jérémy Provost, Technip, France; and Jean El Hajal and Karine Brand, Wieland Thermal Solutions, Germany, discuss how finned tube technology in air cooled heat exchangers can improve LNG plant efficiency.
68 NGL recovery processesChristian Bladanet, Nathalie Millot and Vincent Tirilly, Technip, France, discuss cryogenic NGL recovery processes and how they can be adapted to work upstream of a natural gas liquefaction unit.
75 Recovery reassuranceSladan Kovacevic and Jerome Sialelli, Sofregaz, France, discuss the advantages of a new process for C2+ recovery from LNG.
79 Playing the fieldNew gas sources are introducing more frequent gas compositional changes that will influence the performance of gas appliances. Dr. Ph. Prêtre, MEMS AG, Switzerland, examines how industry users should respond.
85 Removing all tracesTony Wimpenny, Orbital Global Solutions, UK, addresses the technical challenge of measuring trace analytes in the LNG industry.
89 World Gas Conference PreviewLNG Industry previews a selection of the companies that will be exhibiting at this year’s World Gas Conference in Paris, France from 1 – 5 June 2015.
03 Comment05 LNG news12 Diversifying Europe’s energy supply
Peter Kiernan, The Economist Intelligence Unit (EIU), UK, looks at how LNG will become an increasingly key component of Europe’s energy supply.
Technip, in consortium with Daewoo Shipbuilding and Marine Engineering (DSME), is executing PFLNG1 for Petronas, pictured here in DSME’s Okpo yard, South Korea.
The design of the topsides and overall project management is by Technip using Air Products AP-NTM liquefaction technology with a capacity of 1.2 million tpy. The hull measures 300 m x 60 m. It will be installed 180 km offshore Sarawak, Malaysia.
Photo credit: Thomas Villepoux.
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12 LNGINDUSTRY MAY 2015
DIVERSIFYING EUROPE’S
LNG_May_2015_12-17.indd 12 06/05/2015 10:50
MAY 2015 LNGINDUSTRY 13
There are two myths that often obscure discussions about the security of gas supply in Europe. The first is that Europe’s total dependence on Russian gas has been steadily increasing for decades; the second is that Europe suffers from an acute region-wide lack of infrastructural capacity to import enough LNG to
meet its energy needs. While Europe does depend (in some cases heavily) on imports of Russian gas, and some regional markets need LNG capacity to diversify their gas supply options, the European gas market is a complex one that needs to be understood in proper context before reasonable analysis of the issues surrounding European energy security can be made.
With regards to the EU’s dependence on Russian gas, the reality is that this dependence varies greatly between member states. The share of the EU’s total gas consumption that is supplied by Russian gas has been relatively stable for a long time. Furthermore, Russia’s market share of the EU’s total gas imports has actually been in decline since the 1990s. That is not to say that Russia does not play a significant role in Europe’s gas supply. However, Russia’s market share varies considerably between different national markets, while the diversification of Europe’s sources of imported gas has in fact already been occurring.
The development of LNG regasification capacity is one of the reasons why Europe’s sources of imported gas have been diversifying. Since 2000, 14 regasification plants have been constructed in Europe, bringing the total to 21 (including three floating units). In southeast Europe, there is little infrastructure to import LNG (only in Greece), while the Baltic region is developing this capacity. However, in west and southwest Europe, there is under-utilised LNG import capacity with LNG being re-exported to other markets due to weak gas demand.
Peter Kiernan, The Economist Intelligence Unit (EIU), UK,
looks at how LNG will become an increasingly key component of
Europe’s energy supply.
LNG_May_2015_12-17.indd 13 06/05/2015 10:50
12
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A fter years of speculation, Shell has finally decided that market conditions are ripe to launch a bid to acquire BG Group in what would be the second
biggest oil and gas deal in history (behind the ExxonMobil merger in 1998).
The Economist described the potential tie-up, valued at £47 billion, as a “vote for gas”1, and it certainly seems to serve as evidence that Shell is placing LNG at the forefront of its plans for the future. Aside from the other big prize of the proposed acquisition – deepwater assets in Brazil – BG’s portfolio of LNG projects will significantly strengthen Shell’s leading position in the LNG market. Tom Ellacott, Vice President of Corporate Analysis for Wood Mackenzie, believes that the takeover will offer Shell “unrivalled flexibility and exposure to virtually every major LNG supply source and market globally, which means significant scope for portfolio optimisation.”2 Ellacott holds that a Shell-BG combined entity would control sales of approximately 44 million tpy of LNG by 2018, making it the largest LNG seller in the world.
In addition to BG’s enormous Queensland Curtis LNG (QCLNG) project in Australia, which loaded its first cargo at the end of 2014, Shell will also gain access to reserves in East Africa (Tanzania) and the US Gulf Coast (Lake Charles LNG and offtake agreements with Cheniere Energy’s Sabine Pass liquefaction plant). BG’s proposed Prince Rupert LNG project in British Columbia also offers Shell the option to expand its presence in Canada.
For The Economist, the mega merger serves as evidence that the energy business is changing: “Shell
managers highlight the increasing attractiveness of midstream […] and downstream […] activities, which offer less risk and fatter margins than finding and developing new oil and gas.”1 Simply put, the deal is a cheaper and easier way for Shell to increase its reserves by approximately 25%.
Despite a turbulent start to the year, the long-term outlook for natural gas is very positive. The market is growing as more countries turn to LNG as an environmentally friendly solution to meet their surging energy demands. And that is exactly why Shell will view its £47 billion bet on BG as a calculated investment, rather than an optimistic gamble.
The Shell-BG merger will undoubtedly grab much of the limelight at the upcoming World Gas Conference in Paris. This month’s issue of LNG Industry includes a preview of a small selection of companies that will be exhibiting at the show (starting on p. 87). This issue also focuses heavily on the LNG industry in Europe, with a regional report from the Economist Intelligence Unit (p. 12) and a range of interesting articles looking at the continent’s evolving LNG industry from SC Klaipėdos Nafta (p. 18), Enagás (p. 23), Gate Terminal (p.28) and Titan LNG (p. 33).
1. ‘Shell and BG: a vote for gas’, The Economist, (11 April 2015).
2. ELLACOTT, T., ‘Shell secures leading positions in deepwater oil and LNG’, Wood Mackenzie, http://www.woodmac.com/public/media-centre/12527128, (8 April 2015).
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LNGNEWS
MAY 2015 LNGINDUSTRY 5
USA
Freeport LNG closes third train financing
F reeport LNG Expansion has announced that its subsidiary, FLNG Liquefaction 3 (FLIQ3) has
successfully closed on senior and mezzanine debt financing commitments of approximately US$4.56 billion in capital for the construction of the third liquefaction train at Freeport’s facility in Texas, US.
The construction cost for the combined three-train project is expected to be US$12.5 billion, including owner’s costs and interest during construction. An additional US$3 billion in funds were raised for refinancing and acquisition costs associated with the existing LNG import facility, letters of credit facilities, and a special contingency fund.
With this final milestone, Freeport LNG has issued a full notice to proceed to CB&I, Zachry Industrial and Chiyoda to construct the third train. Full three-train operation is expected by 3Q19. LNG production from the first liquefaction train is expected in early 2018, with commercial operation of the first train expected to commence by 3Q18.
Macquarie Capital is serving as Freeport LNG’s sole financial advisor with respect to the financing for the project.
Equatorial Guinea
Golar LNG selected as midstream partner for Fortuna FLNG project
Golar LNG has signed a binding Heads of Terms with Ophir Energy Plc for the provision of the GoFLNG vessel
Gimi for the Fortuna development block.The Heads of Terms has been approved by Ophir’s
Equatorial Guinea, Block-R upstream partner, GEPetrol, and will shortly be formally ratified. The agreement will be structured as a 20-year tolling contract, commencing commercial operations in 1H19.
Golar LNG believes that Block R’s high purity 2P gas resources, situated in an area of benign sea states, are ideally suited for the application of its GoFLNG technology.
Golar, with its partners Keppel Shipyard and Black & Veatch, committed to the Gimi FLNG conversion in December 2014. At full production, the vessel will have a contracted capacity of 2.2 million tpy of LNG, to be marketed by Ophir and GEPetrol. The project is expected to deliver an EBITDA for Golar in the first full year of operation in the region of US$350 million.
The integrated Ophir/GEPetrol/Golar LNG project is expected to take final investment decision (FID) during 1H16 following completion of the upstream FEED study.
Germany
Bomin Linde LNG fuels passenger ferry
Bomin Linde LNG has announced that it has completed the initial fuelling of the MS Ostfriesland passenger
ferry with LNG.The 94 m long Borkum ferry, owned by AG EMS, was
fuelled with 40 m3 of LNG.The ferry was retrofitted to run on LNG by Brenn und
Verformtechnik Bremen (BVT). It will now need to perform several dry runs and marine tests, before initiating its daily service between Emden and the North Sea island of
Borkum by the middle of this year.Dr. Bernard Brons, AG EMS Managing Director, said:
“We are very happy about this successful test run, which was carried out safely and quickly […] This was possible because the interactions between our partners worked well and Bomin Linde LNG comprehensively prepared and planned the entire fuelling process in advance and obtained all required permits. This first activity will bring us closer to our plan of starting scheduled LNG operations [...] in June.”
LNGNEWS
6 LNGINDUSTRY MAY 2015
NEWS HIGHLIGHTS
Australia
Nexans to supply cables to Ichthys project
Nexans has been awarded a contract to supply halogen-free cables as part of the construction of the
Ichthys LNG project’s Central Processing Facility (CPF).The contract, worth approximately €11.5 million, was
awarded by Samsung Heavy Industries (SHI). Nexans will supply approximately 2200 km of halogen-free instrumentation and electrical cables for the LNG processing plant, located near Darwin, Australia.
SHI specified personnel and equipment safety as the most important issue in the construction of the CPF. Nexans’ halogen-free cables adhere to both IEC and DNV standards.
The Ichthys CPF will be the world’s largest semi-submersible platform. Its large, floating central processing facility is a column-stabilised, offshore semi-submersible production unit supporting a hydrocarbon processing system and utilities, as well as living quarters for 200 people. It will power the plant and control the compressor that liquefies the gas.
USA
Magnolia LNG moves towards EPCC phase
L iquefied Natural Gas Ltd’s (LNG Ltd) subsidiary, Magnolia LNG, has taken two major steps towards
preparing for the engineering, procurement, construction and commissioning (EPCC) phase of the Magnolia LNG Project, in Lake Charles, Louisiana, US.
In January 2015, Magnolia LNG finalised the EPCC contract with SK E&C Group. Kellogg Brown & Root (KBR) joined the project as the lead partner in a joint venture with SK E&C (KSJV). Magnolia LNG and KSJV have now agreed to terms and jointly initialled off the updated EPCC contract, including full scope of work and all supporting contract schedules.
Magnolia LNG has also completed a tender process and has selected Clough-CH-IV to act as owners engineer for the EPC phase of the project. This will include providing technical and project execution support personnel to Magnolia LNG, as the project moves to start-up in support of delivering LNG from the first 2 million tpy train by the end of 2018.
.com
X BAM Clough completes Ichthys jetty
X UPS adds LNG tractors to fleet
X Lower Canadian costs may compete with US LNG
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With recent awards and on-going projects in the U.S. Gulf Coast, Australia and China, CB&I continues to build on its legacy of leading in the LNG marketplace. Contact CB&I to learn how our complete solutions can benefit your next LNG project.
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LNGNEWS
8 LNGINDUSTRY MAY 2015
DIARY DATES
UK
Grain LNG offers reload service
National Grid’s Isle of Grain LNG terminal has announced that it is to offer a reload service to market.
This is the first time that an LNG reload service has been offered in the UK.
The announcement follows successful LNG ship cool down and ship reload trials on the 160 000 m3 Asia Vision LNG carrier in March 2015.
Simon Culkin, Grain LNG Terminal Manager, said: “Grain is a world class LNG facility, welcoming vessels from around the world. This new reloading service facilitates our break bulk capability and complements our cooling, road tankering and regasification services.”
Grain LNG is the largest import terminal in Europe (the eighth largest in the world), with 1 million m3 of storage space and the capability to import 15 million tpy of LNG. The terminal has two jetties, one of which is Q-Max capable.
The LNG terminal has planned a fourth phase of development, subject to market interest. This would see the addition of a 190 000 m3 tank and a second cryogenic unloading line.
01 - 05 June 2015World Gas ConferenceParis, Francewww.wgc2015.org
08 - 11 June 2015FLNG 2015London, UKwww.icbi-events.com/event/flng-conference
23 - 25 June 2015CWC’s Small-Mid Scale LNG SummitAmsterdam, the Netherlandswww.small-mid-lng.com
08 - 11 September 2015SPE Offshore EuropeAberdeen, UKwww.offshore-europe.co.uk
28 - 30 September 2015Global LNG Tech SummitBarcelona, Spainwww.lngsummit.com
27 - 30 October 2015GastechSingaporewww.gastechsingapore.com
Lithuania
Litgas in merger with sister company
Lithanian energy group, Lietuvos Energija, has announced that it will merge its two natural gas supply daughter
companies: Litgas and Lietuvos Duju Tiekimas.The merger will create one gas supply company in Lithuania,
which will seek to expand its activities in the Baltic region. The plans for the merger have already been approved by the Finance Ministry (shareholder of Lietuvos Energija).
Following the merger, the company will be named Lietuvos Duju Tiekimas. According to plans, the company will also take over the status of the designated LNG supplier. Litgas will be used as a trademark name in the company’s international activities.
Following the merger, Lietuvos Duju Tiekimas will guarantee the designated supply of natural gas via the Klaipėda LNG terminal, expand natural gas trading capacity in the region, and develop small scale activities of LNG supply in cooperation with Statoil.
Dr. Dalius Misiunas, CEO of Lietuvos Energija, said that the merger “will allow us to offer new services and products in the Lithuanian market and the markets of the neighbouring countries in a more flexible manner.”
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LNGNEWS
10 LNGINDUSTRY MAY 2015
France
GDF SUEZ becomes ENGIE
GDF SUEZ has announced a change in its name to ENGIE.A statement from the company read: “As the
world changes, all energies change with it. That’s why GDF SUEZ is now ENGIE. The world of energy is undergoing profound change. The energy transition has become a global movement, characterised by decarbonisation and the development of renewable energy sources, and by reduced consumption thanks to energy efficiency and the digital revolution. Today, the need is to mobilise all energies, to innovate, gather, and marshal every idea.”
Gerard Mestrallet, Chairman and CEO of ENGIE, added: “The energy transition is more than ever a reality for which we have both great ambitions and a great responsibility. To meet the new challenges of this reality and to accelerate our development, we have decided to give the Group a new name: ENGIE. It is an easy name and one that is powerful, a name that evokes energy for everyone and in all cultures, a name embodying our values and activities.”
ENGIE’s new logo includes the rising sun, which is said to symbolise “a new day in the world of energy”.
Panama
Panama approves new Canal tolls structure
The Cabinet Council of the Republic of Panama has approved a proposal to modify the Canal tolls structure.The move follows a recommendation from the Panama
Canal Authority (ACP) Board of Directors.The accepted proposal, which modifies the pricing
structure for most Canal segments, will better facilitate the goal of providing reliability to the global shipping and maritime community, while allowing the ACP to safeguard the competitiveness of the waterway.
“After working in close cooperation with our partners in the maritime industry, I am pleased we will be able to provide a more bespoke pricing solution for our customers; one that recognises their various needs and requests, while still appreciating the value and reliability provided by the route,” said ACP CEO, Jorge L. Quijano.
Most segments will now be priced based upon different units of measurement to meet and align with the diverse traffic transiting the locks. For example, LNG and LPG vessels will be based on cubic meters and tankers will be measured and priced on Panama Canal Universal measurement system (PC/UMS) tons and metric tons of cargo.
Small-scale PRICO® LNG pays big dividends.
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Liquefied Natural Gas (LNG) is easy. Even more, it’s profitable. LNG can deliver big
savings compared with diesel and fuel oil, and the long-term value shines through
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for simplified expansion when needed — all backed by the proven history and easy
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UK
BG acquisition to strengthen Shell’s LNG position
Wood Mackenzie believes that Shell’s bid to buy BG Group is a compelling first move in the mergers and acquisitions
(M&A) market, which will secure its industry leading positions in deepwater oil and LNG.
The deal, which is expected to be completed in early 2016, values BG’s equity at US$70 billion, plus net debt of US$12 billion.
Tom Ellacott, Vice President of Corporate Analysis for Wood Mackenzie, believes that the deal will result in the emergence of an LNG behemoth. He said: “The move re-energises Shell’s LNG development pipeline, adding a leading US position, entry to East Africa, and new options to expand in Australia and Canada.” Ellacott believes that the combined entity will become the largest LNG seller globally by 2018.
Wood Mackenzie also believes that the oil in deepwater Brazil will be a significant prize for Shell. Brazil is expected to deliver 550 000 bpd of oil by 2025, and Wood Mackenzie notes that Shell will have 50% more value locked up in the deepwater sector than BP once the deal closes.
Ellacott said: “This may be the catalyst for a new phase in upstream corporate M&A, and the spotlight will shift to how other majors – and particularly ExxonMobil – respond.”
Small-scale PRICO® LNG pays big dividends.
With turnkey solutions from UOP and Black & Veatch, the switch from diesel to
Liquefied Natural Gas (LNG) is easy. Even more, it’s profitable. LNG can deliver big
savings compared with diesel and fuel oil, and the long-term value shines through
even more in lower lifecycle costs. Startup is fast, and the modular solutions give
you the operational flexibility to meet your exact needs now with a platform designed
for simplified expansion when needed — all backed by the proven history and easy
program management of UOP and Black & Veatch.
easy. fast. profitable.
For more information about small-scale LNG solutions from UOP and Black & Veatch, visit uop.com or bv.com.
© 2015 Honeywell International Inc. All rights reserved.
SPM-UOP-067-Ad_8.5x11_FullPage.indd 1 1/16/15 2:15 PM
12 LNGINDUSTRY MAY 2015
DIVERSIFYING EUROPE’S
MAY 2015 LNGINDUSTRY 13
There are two myths that often obscure discussions about the security of gas supply in Europe. The first is that Europe’s total dependence on Russian gas has been steadily increasing for decades; the second is that Europe suffers from an acute region-wide lack of infrastructural capacity to import enough LNG to
meet its energy needs. While Europe does depend (in some cases heavily) on imports of Russian gas, and some regional markets need LNG capacity to diversify their gas supply options, the European gas market is a complex one that needs to be understood in proper context before reasonable analysis of the issues surrounding European energy security can be made.
With regards to the EU’s dependence on Russian gas, the reality is that this dependence varies greatly between member states. The share of the EU’s total gas consumption that is supplied by Russian gas has been relatively stable for a long time. Furthermore, Russia’s market share of the EU’s total gas imports has actually been in decline since the 1990s. That is not to say that Russia does not play a significant role in Europe’s gas supply. However, Russia’s market share varies considerably between different national markets, while the diversification of Europe’s sources of imported gas has in fact already been occurring.
The development of LNG regasification capacity is one of the reasons why Europe’s sources of imported gas have been diversifying. Since 2000, 14 regasification plants have been constructed in Europe, bringing the total to 21 (including three floating units). In southeast Europe, there is little infrastructure to import LNG (only in Greece), while the Baltic region is developing this capacity. However, in west and southwest Europe, there is under-utilised LNG import capacity with LNG being re-exported to other markets due to weak gas demand.
Peter Kiernan, The Economist Intelligence Unit (EIU), UK,
looks at how LNG will become an increasingly key component of
Europe’s energy supply.
14 LNGINDUSTRY MAY 2015
Therefore, the problem of Europe’s access to LNG is that it is too heavily concentrated in some markets (namely Spain, France, the UK, Belgium, Italy and the Netherlands) and that bottlenecks in Europe’s gas pipeline network are preventing energy flows from reaching landlocked markets further east, where diversity of supply is lacking.
EU gas imports in contextAs with oil and coal, the EU is heavily dependent on imported natural gas to meet its energy needs. The total import share of the EU’s gas demand has been steadily rising over the last decade, from 52% in 2003 to approximately 66% in 2013. This is largely due to rising demand and declining production in the UK and the Netherlands, the only two significant gas producers in the EU. Russia is the largest supplier of the EU’s imported gas, however its share of the market has been declining since the 1990s. In 1990, 75% of Europe’s gas imports originated from Russia, however by 2012 this share had fallen to 32%. In 2013, this bounced back to approximately 40%, but will edge down again in the longer-term, partly because of competition from new supplies of LNG and pipeline gas from elsewhere.
The share of imported Russian gas in the total EU gas consumption has hovered between 25 – 30% since the middle of the 1990s. In 2013, Russian gas accounted for 27% of EU gas demand, up from 24% in 2012. There are several states (in the Baltic region and southeast Europe) that are reliant on Russia alone for their external gas supply. However, this level of dependence is not replicated elsewhere in Europe. For example, over 40% of Gazprom’s gas exports to Europe in 2013 went to Germany and Italy. Gazprom’s share of those major gas markets, however, is less than its market share in eastern European countries, where total gas consumption is also much smaller.
One of the reasons why Russia’s share of the EU’s total gas import market has been falling steadily is because of the boost in LNG capacity in southern and western Europe (in addition to increased imports of pipeline gas from non-EU member Norway) since 2000. Over the last decade, LNG exporter Qatar has muscled its way into the European gas market, and in 2011 accounted for 11% of the EU’s total gas imports (although this fell to 8% in 2013). Other LNG exporters that supply Europe include Algeria, Nigeria, and Trinidad. In 2013, LNG suppliers (mainly Qatar, in addition to at least seven others) accounted for 14% of the EU’s total gas imports, with the remaining 86% supplied by pipeline. LNG therefore has gained a foothold in the European gas market. Before the slump in 2012 – 2013 (caused by a fall in European gas demand), Europe’s imports of LNG had risen steadily to reach a peak of over 80 billion m3 by 2011, from just under 40 billion m3 in 2003.
In 2012 – 2013, European LNG imports fell with much of the continent’s import capacity under-utilised. Once gas demand recovers, Europe will have the ability to absorb much greater volumes of LNG. However, infrastructure needs to be constructed beyond western and southern Europe, if gas from a multiplicity of suppliers becomes available to markets further east that rely almost exclusively on Russian gas. In addition to more import facilities in regions such as the Baltic, this also includes the linking of pipeline and transmission infrastructure to improve interconnection of energy and electricity supplies between the EU’s national markets. This is
already happening to some extent, however further investment, albeit costly, needs to be made over the next 10 – 15 years if the EU is to reach its goal of creating an integrated single energy market.
Europe’s LNG capacityIn 2013, the EU’s total LNG import capacity was 186.4 billion m3, with over half of this capacity located in the UK and Spain. As the EU’s LNG imports slumped to approximately 40 billion m3 in 2013, Europe’s LNG capacity is severely under-utilised in the current soft market conditions. Nevertheless, Europe is the second-largest market for LNG after Asia, and accounted for approximately 14% of total LNG imports globally in 2013 (although when EU LNG imports peaked in 2011, this share was 27%). Weak demand for gas in Europe – a combination of sluggish economic growth, stagnant power demand, and competition from cheaper coal and growth in renewables – has compelled some EU LNG importers, especially Spain and Belgium, to re-export the product elsewhere.
With LNG capacity in western Europe under-utilised, there will be little in the way of additional capacity to come online in the short to medium-term. Exceptions include the construction of France’s Dunkirk LNG and an expansion of capacity to the Bilbao LNG plant in Spain. However, interesting developments have been occurring in the Baltic region, which will make a significant difference to this regional gas market. Lithuania’s Klaipėda LNG terminal, a floating storage and regasification unit (FSRU), began operating in late 2014. Although with a current capacity of just 0.5 billion m3, in the longer-term this could be expanded to between 2 – 3 billion m3, which is equivalent to Lithuania’s annual gas consumption. While Lithuania would still import some gas from Russia’s Gazprom, it can negotiate terms with better leverage and has already indicated that it will not seek a renewal of its long-term supply contract with Gazprom when it expires. Klaipėda LNG could also supply the gas needs of Estonia and Latvia, which import approximately 2 billion m3/yr from Russia. Competition in the Baltic markets will not break Gazprom’s bank, but it gives the Baltic states crucial leverage in supply negotiations with Gazprom, while providing much needed diversity of supply to the region.
Finland and Estonia have been cooperating on a joint LNG project that would involve the construction of a terminal in both countries, and that would be linked by a pipeline across the Gulf of Finland. A proposal to secure EU funding for this project has not been successful, however both countries reportedly agreed in November 2014 to proceed with the project. Meanwhile, Poland’s 4 billion m3 Świnoujście regasification terminal on the Baltic Sea is expected to become operational in mid-2015. The planned capacity of this terminal equates to approximately 25% of Poland’s gas demand of 16 billion m3 (of which Russia currently supplies two-thirds). An inter-connector gas pipeline between Poland and Lithuania, which will be operational by 2019, will improve energy connectivity between Poland and the Baltic states. The gas market in northeast Europe, therefore, will be quite different by the end of this decade, largely due to the development of LNG capacity in a market that has long been reliant on one external supplier.
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