At the heart of recent US-Russia political tensions is the ever-changing European gas market. With more US LNG to be expected in the near future, Russia is fighting back by expanding its pipelines’ reach with Nordstream 2.
With US exports in play, Russia’s only chance to stay relevant is understanding what European markets are looking for in a supplier. Experts in the energy market debate.
What do you think European markets need in their suppliers?
Monika Zsigri, Policy Officer of the European Commission at DG Energy
“EU energy policy in gas aims at achieving a secure, competitive, affordable and sustainable gas supply for its citizens and businesses. A diversity of suppliers competing on the European market can provide a healthy balance between these objectives. The EU regulatory framework and competition enforcement tools provide a level playing field for suppliers so they can do that. The trend globally, and also in Europe, is towards more flexibility, shorter terms and, for certain uses, smaller volumes (such as LNG in transport). Suppliers need to adapt, and they do, to these market needs if they are to compete for customers.”
Andrei Belyi, Associate Professor at the Centre for Climate Change, Energy and Environmental Law
“European markets move towards a gas-to-gas competition, where physical and trade flows are not always matching. Market players will marginalize the factor of physical origin of the blue fuel. Instead, the buyers’ market dominated by a persisting gas glut reinforce a pressure of cost-efficiency on any gas producer.”
Howard Rogers, Chairman of the Natural Gas Research Programme at the Oxford Institute for Energy Studies
“For markets, which still have long term contracts, buyers need to be able to buy gas on pricing terms which are the same as the traded hub prices. For buyers who rely on hubs this is less of a concern – although they would be keen to ensure adequate infrastructure capacity and 3rd party access to regas terminals.”
Quinten Peer, Energy Project Developer
“The high dependence of the EU on gas imports means that its role on the global energy market is increasingly more like Japan. It is therefore good that the EU is aggressively pursuing significant growth of renewables, however, it needs to realize that it will still require many decades before renewables can largely or even fully replace natural gas. It is therefore not a matter of what the European markets need in their suppliers but how it can use the current downturn in the gas market to pro-actively secure affordable and steady supplies for decades to come, just like Japan has been doing during the past years. This requires a unified view of the EU and a coordinated execution of a comprehensive updated strategy.”
Chris Goncalves, Chair and Managing Director of BRG Energy Practice
“Supply competition and low prices. European markets have long sought to increase their diversity of suppliers to maintain security of supply, and thereby also foster competition to reduce the prices and cost of supply. In the prior market environment of substantial indigenous production complemented by a limited few major import sources delivered by pipeline, these were important commercial and economic priorities.
“But the global LNG boom, and large new gas discoveries and pipeline corridors in the Caspian, Middle East, East Mediterranean, and North Africa regions, have begun to change the European supply paradigm. Supply security concerns are substantially mitigated by the rapid proliferation of LNG import terminals and the growing diversity of LNG suppliers who deliver cargoes into European markets. LNG is now able to enter Europe at numerous locations throughout UK, Benelux, Iberia, Italy, SE Europe, and the Baltics where pipeline supplies are limited, constrained, and/or subject to little competition. With mounting oversupply, global prices have fallen and converged so that LNG suppliers are eager to liquidate cargoes at low prices because they are no longer able to pick and choose their customers and prices between competing Asian and European buyers.
“In this environment, the primary concern of European buyers has begun to shift from supply security to pricing and price levels. Although Europe now has reliable access to worldwide supplies, the long-term price for supply and the level and nature of supply competition between LNG and pipeline gas sources is a priority interest. LNG markets move in cycles and the current oversupply is expected to evaporate by the early 2020s. For many European buyers, these trends put into ever sharper focus careful supply portfolio planning, contracting strategy, and risk management practices.”
The opinions expressed in this presentation by Chris Goncalves are those of the individual author and do not represent the opinions of BRG or its other employees and affiliates.
Vivek Chandra, Chief Executive Officer of Texas LNG
“European pricing has rapidly evolved from oil linked prices to hub pricing. Not all suppliers can take European hub pricing risks – especially not the US suppliers that must purchase feed gas from the US grid that is priced on US hub prices. European customers must be willing to share some of this basic risk with LNG suppliers if US LNG is really going to be competitive in Europe.”