The Evolution Of The European Gas Market
Written on 30 March 2020
Robert Johnston, Director, Global Energy & Natural Resources, Eurasia Group, will be speaking at Flame in 2012. In the lead-up to this year’s conference in Amsterdam, Robert shares with us some of his predictions for the European Gas Market over the next decade.
What Are Your Top 5 Predictions For The Evolution Of The European Gas Market In The Next 10 Years?
1- The EU internal gas market will be better integrated, more liquid and liberalized and therefore less vulnerable to disruptions
By 2022, the implementation of the EU Third Energy Package which aims at liberalizing and integrating gas and power markets in the EU will have radically transformed the internal gas market. Liquidity will have improved through unbundling, and the development of more liquid trading gas hubs in Continental Europe. But this is conditional that sufficient investments will be made in gas interconnectors, international pipelines, LNG regasification terminals, and underground gas storage ensuring better West to East and South to North gas flow into Europe.
2- LNG will continue to flow into Europe—albeit at lower rates— despite Asia’s growing needs for the fuel
Despite growing pricing competition with Asia to attract LNG cargoes, Europe expands its regasification capacity in a move to diversify its sources of gas supply and increase its market flexibility. Europe counts 19 regasification terminals currently operational, 4 under construction and about 9 are proposed or under study. Qatar has shown than despite higher prices in Asia, its strategy is to continue sending significant volumes of LNG into European regasification terminals— notably in the UK, Italy and Belgium—to protect its Asian prices and to increase its market shares. However, as Europe’s LNG importance declines relatively to Asia and emerging niche markets, we expect European regasification terminal usage to be below 37%.
3- Russia’s Gazprom will remain the main supplier to Europe, but European gas supply will be more diversified
Russia will remain Europe’s main source of gas import. Gazprom has expanded its pipeline export capacity into Europe through the Nord Stream pipeline which started last year and is planning to build the South Stream line to start flowing gas into Southern Europe by 2015. However European dependence on Russian gas will diminish this decade as new LNG supplies (North America, Nigeria, Equatorial Guinea, Angola, and Israel) will enter the market, along with additional pipeline capacity (Caspian, Algeria) and the ramp-up of European shale gas developments.
4- Pricing structure for gas will change towards less oil-indexation
The heated debate in Europe on finding another long-term gas contract pricing structure and indexation to secure competitive gas for power generation will drag on in the next years. At the core of this pricing issue is the ongoing gas pricing renegotiation between suppliers, notably Gazprom, Statoil, Sonatrach and main European utilities which are requesting a further reduction in oil-indexed prices in their long-term contracts. Longer-term, major producers to Europe will have increased pressure to diminish the amount of oil-indexed gas contracts amidst well-supplied LNG market post-2015 and emergence of European shale gas.
5- Gas will be an important part of the new energy mix post-Fukushima, to make-up for loss of nuclear energy
Germany’s phase-out plan and Italy’s cancellation of new reactor plans will have prolonged impact on energy policy. The call for gas will be higher in the next decade, especially in power generation, but this is dependent on competitive pricing for gas and European economic recovery. However, increasingly European energy mix will be diversified with higher share of renewables.
Robert Johnston will be speaking at Flame 2012 on Day 2 at 10:15am, in a session on Geopolitical Around The World Briefing: MENA, Europe, Russia, Asia & North America. In this talk, Robert will be exploring the current geopolitical hotspots, following a turbulent 2011, and predicting the new geo-political challenges moving forward.