US export ambitions, the UK’s exit from the European Union, and regional small-scale and transhipment plans may drive a new wave of terminal expansion in northwest Europe.
Europe’s LNG imports are set to grow this year, but analysts believe the pattern of growth may be one of volatile highs and lows, rather than an immediate US export-led supply glut as many observers have feared.
Gas demand grew 6 per cent last year, according to Platt’s, which noted a marked shift in northwest Europe from coal to gas. Both the UK and France generated significant growth in demand, to meet growing power generation demand in the former and to offset a partial nuclear shutdown in the latter.
By 2020, the US will export some 70 million tonnes a year (mta) of LNG. Europe is likely to become the final destination for unfixed US cargoes. It is not yet clear how many will head towards northwest Europe and how much volume this market can absorb.
Cheniere expects half its LNG exports to go to Europe in future. However, it sent just five cargoes to European Union member states last year from Sabine Pass LNG; three to Spain and one apiece to Portugal and to Italy.
Shell head of integrated gas Martin Wetselaar told a London press briefing this spring that European demand prospects face many variables; the volume of piped gas imports from Russia, the regulatory environment and how quickly or slowly Europe’s home-grown gas production dries up.
US exports underpin plans in northwest Europe to add four deepsea import terminals – although these projects also respond to specific local conditions. Germany has no deepsea import terminal and Ireland needs to reduce its dependence on UK imports as Brexit looms.
Germany’s LNG-import plans have come and gone over the years. It can source natural gas via Belgium’s Fluxys LNG terminal and from Gate Terminal in the Netherlands and several proposed small-scale ventures will support growth in demand for LNG as marine fuel.
However, Netherlands-based Gasunie is proposing to develop a midsize LNG-import terminal on the River Elbe, to supply 2-3 million tonnes a year. Director Ulco Vermeulen told a conference in January that the plans include a jetty for marine bunkering, truck loading and small-scale distribution.
However, northwest European plans to add LNG-import capacity are concentrated in the British Isles
The UK’s three established LNG-import terminals – Grain LNG in Kent and South Wales’ South Hook and Dragon LNG terminals – can import up to 35 million tonnes a year of LNG.
Industry sources say the UK uses just a third of its import capacity. And reports suggest that Shell wants to divest from its 50-50 partnership with Petronas in Milford Haven-based Dragon LNG, and will give Malaysia first refusal.
Nevertheless, the UK looks set to develop two additional deepsea import terminals in the north of England, positioning itself as a hub to store and sell on US export cargoes.
In December Meridian LNG extended its offtake agreement with Louisiana-based Magnolia LNG to supply a floating storage and regasification unit (FSRU) to Morecambe Bay. The deal extends an agreement signed two years ago, to supply 2 million tonnes a year (mta) to the FSRU.
LNG Ltd-owned Meridian has until December to close the offtake agreement. Höegh LNG is tipped to supply the FSRU to Barrow-in-Furness in the northwest.
Meanwhile, commodities giant Trafigura is to reopen Teesside Gas Port in the UK northeast to LNG imports. It is working with landowner PD Ports to secure permits for the project, aiming to receive the first shipments next summer and to develop the northeast terminal as a UK energy hub.
Trafigura will invest US$30 million in recommissioning the terminal and will charter an FSRU. A spokeswoman confirmed the plan but declined to discuss it in detail.
Analysts say Trafigura is cashing in on falling LNG prices and reducing its exposure to falling demand for coal. “We’re interested in having more infrastructure, both in Europe and around the world,” Trafigura head of LNG trading Hadi Hallouche told the Financial Times.
Trafigura may also position Teesside as European gateway for US LNG exports. “Given the growth in volumes globally and the flexibility of US supplies, it is likely that LNG shipped from the US will make up the lion’s share,” Mr Hallouche said.
“LNG infrastructure is coming down in cost, and liquidity in the LNG market is getting deeper, making these kinds of projects possible.”
US-based Excelerate Energy launched Teesside GasPort in 2007 as the world’s first dockside floating regasification project, receiving gas from a visiting FSRU. The site near Middlesbrough delivered natural gas into the UK’s national transmission system, providing access to national balancing-point markets.
Teesside GasPort can handle LNG carriers up to 150,900m³. Excelerate boasted that it brought the project into service within a year of selecting the site and for 10 per cent of the cost of building a land-based LNG terminal. In fact, it received few shipments.
Excelerate closed the site in 2015, saying that the terminal had come “to the end of its commercially viable life”.
Meanwhile, Brexit fears are forcing Ireland to reconsider its dependence on the UK, supplier of 60 per cent of the republic’s gas needs. Dublin cannot negotiate a bilateral energy-supply deal with London, post-Brexit, and has applied for European Union (EU) funding for two proposed import ventures.
One is the Celtic interconnector project, a 600km subsea power link from Brittany to Ireland’s south coast. EirGrid and RTE must decide whether to back the project in 2020-2021, but have support from the Irish government. If they do, the Celtic interconnector could open in 2025.
The second proposal is to revive Ireland’s long-stalled Shannon LNG import terminal. The €500 million (US$536.6 million) project won planning permission 11 years ago, but in 2015 owner Hess sold up to an unnamed private equity company.
Hess shipped out after Ireland’s energy regulator ruled that the project would have to contribute to the cost of interconnector pipes to Scotland that the project would not use. Now that the UK has voted to leave the EU, Ireland is looking to resuscitate the venture.
Energy minister Denis Naughten has described Shannon LNG as “the best solution available to us, post-Brexit, from a supply-security perspective”.
Reports from Ireland this spring suggest that a new investor is seeking funds from the European Investment Bank (EIB) and the Ireland Strategic Investment Fund. Post-Brexit, Ireland believes the Shannon LNG project is “imperative”.
Some reports suggest Ireland could opt for an FSRU as a quicker, cheaper solution to its predicament. And sources close to the latest talks say Ireland must tackle the question of contributing to the cost of the Scottish interconnector pipes if Shannon LNG is to go ahead.