Liquefied Gas Business: Lacking a Strong Foothold (For Now)

Energy Trade

kormany.hu

Energy experts were in Budapest in the first week of December to discuss the liquefied natural gas market. Balázs Barabás went along to the conference for the Budapest Business Journal.

Péter Sztáray, Minister of State for Security Policy. Photo by kormany.hu

The International Energy Agency, established in 1974 to ensure the security of oil supplies, has evolved since then into a space for a global dialogue on energy, providing authoritative statistics and analysis and examining the full spectrum of energy issues.

One of the main studies released by the IEA, consulted by energy experts around the world, is the annual World Energy Outlook (WEO).  

The gas sector has a separate chapter in the WEO, which states that natural gas had a “remarkable” year in 2018, with a 4.6% increase in consumption, accounting for nearly half of the increase in global energy demand.

The WEO notes that “liquefied natural gas is the key to more broad-based growth in future; 2019 is already a record year for investment in new LNG supply, even as prices in key importing regions have fallen to record lows.”

The WEO looks ahead using two projections, the Stated Policies and the Sustainable Development scenario. In the Stated Policies Scenario, LNG overtakes pipeline gas as the main way of trading gas between regions by the late 2020s.

There is significant uncertainty, however, as to the scale and durability of demand for imported LNG. Over the long-term, the WEO explains, end-user prices generally seem set to rise. If not, LNG suppliers will be unable to recover their long-term investment costs or governments will have to continue to subsidize the cost of LNG imports.

“The LNG industry therefore faces a struggle to gain a strong foothold in developing markets where affordability is a key consideration,” the study concludes.

Significant Role

In short, LNG is expected to play a significant role in the future of the gas market, but when and how exactly this will happen, forecasts are not very clear. However, the perspectives for Hungary are promising.

In October, Minister of Foreign Affairs and Trade Péter Szijjártó expressed hopes that the Croatian LNG terminal construction will be completed by January 2021, which would allow Hungary to purchase gas from Qatar, thus further diversifying the gas acquisition sources.

“Qatar has become the world’s number one exporter of liquid natural gas, exporting more than 100 billion cubic meters each year, and the country plans to increase its LNG exports to 145 billion cubic meters in the upcoming years,” Szijjártó noted.

The LNG Summit in Budapest aimed to bring more information about the technology and market opportunities. Barbara Dorić, CEO of LNG Croatia said that the liquefied natural gas terminal on the Island of Krk is a game changer for the security supply of the region.

The project divides into two phases, the first of which is a floating LNG terminal with total capacity of 2.6 billion cubic meters per year (bcma). The total project investment costs are EUR 233.6 million. All necessary activities were accomplished by April 2019 and the terminal should be fully operational from January 1, 2021, Dorić told delegates.

She also referred to the interconnection with Hungary, which is currently under construction and will be fully operational by the end of this year and will have a capacity of 1.7 bcma to be exported through Hungary on a yearly basis.

Strong Potential

Central and Eastern Europe has a strong potential for LNG in the power and transport sectors, as Croatia is not the only country with a terminal under construction, Yury Sentyurin, secretary general of the Gas Exporting Countries Forum in Qatar said. Belgium, France, Italy, Lithuania, the Netherlands, Portugal, Poland and Spain are also players on the LNG market, Sentyurin said.

This may seem a lot, but currently the CEE region’s LNG imports are meagre, accounting for 5% of Europe’s imports and only 1% of global LNG imports, Sentyurin noted.

But this is part of a wider trend; although, on a global level, LNG trade has grown strongly since 2017, this expansion is expected to weaken in the short-term, as less LNG projects are commissioned, he added.

Speaking about the role of LNG as a supply channel, Péter Sztáray, Minister of State for Security Policy said “Hungary’s ambition level must be aligned with the available possibilities.” The reality is that the Russian gas is and will be an important part of the European and regional energy security, because its price is competitive.

As for alternative sources, the region’s energy security could be most dramatically changed by the “Neptune Deep” project, which could supply gas from the Black Sea to Central European markets.

The second most significant influence will be the LNG terminal in Croatia, which could connect medium-sized Central European companies to the global LNG market, Sztáray noted. He added that there is still a long way to go, but bilateral discussions are very promising.

Russia may be an important player, but the United States is also making steps to expand its share of the gas market. Dan Milstein, director of the European Regional Office for the U.S. Department of Energy noted that the U.S. natural gas production has risen by more than 50% since 2000 and will have more than doubled by 2050. This is due mainly to the extraction of shale gas.

American gas production has already exceeded internal consumption and the surplus will continue to grow over the next few decades, despite demand also growing, both from the industrial and the residential and commercial sectors. LNG exports are rapidly rising and the U.S. administration has adopted fast-track approval procedures for small scale exports, Milstein said.

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