Natural gas demand in Europe is set to rise by 100 billion cubic metres (bcm) over 2008 levels by 2035, according to the International Energy Agency (IEA). With production falling, reliance on imports will also rise.
In its 2011 World Energy Outlook, the IEA points to liquefied natural gas (LNG) being an important element of plans in the European Union to diversify its supply sources and therefore improve security of supply. This is borne out by current investment levels in LNG in the region.
LNG accounts for around 15 per cent of Europe’s gas supplies, with fuel shipped in from Qatar, Nigeria and Algeria, among other places. According to data from Gas Infrastructure Europe (GIE), in 2011 there were 20 LNG regasification terminals in Europe, six of them undergoing expansion. Regasification capacity now stands at around 200bcm/year, and with expansions and new terminals under construction, this is expected to reach 259bcm/year in 2015.
The growth in LNG’s role in Europe is partly being driven by the increase in gas production capacity in supply countries – particularly Qatar – and partly by rising demand, says GIE. It argues that LNG increases gas supply competition while helping to support the growth in renewables.
Growth in investment
Investment in LNG capacity in Europe has grown significantly over the past few years. There are six LNG regasification terminals under construction in the EU, representing investments of €4 billion (£3.2 billion) and which will add 31bcm/year of new regasification capacity. These include a massive 13bcm/year terminal in Dunkerque, France; Italy’s 3.75bcm/year Livorno project and the 5bcm/year Musel project in Spain. A further 28 terminals are in various stages of planning and would require around €17 billion of investment, according to GIE.
Despite the growing importance of LNG, the European Commission has been slow to support it. Instead, it continues to focus on reinforcing the development of natural gas pipelines through key “corridors” as a means of diversifying supplies.
In 2008, of 18 natural gas infrastructure projects to share €1.44 billion of funding from the European economic recovery programme, just one was an LNG terminal – the 5bcm/year project at Swinoujscie, Poland.
The Swinoujscie project is under construction and is scheduled to deliver its first gas in 2014. It received €80 million of EU funding as well as financing from the European Bank for Reconstruction and Development. It is significant as the first LNG terminal in central and eastern Europe and will be able to supply one-third of Poland’s gas consumption needs, reducing its reliance on Russia.
Upgrading of infrastructure
However, in October 2011, the European Commission announced a plan to use €9.1 billion from the EU’s 2014-2020 budget to upgrade energy infrastructure, with funding awarded to a select group of common-interest projects. Among the list of potential common-interest projects is a raft of LNG terminals that could boost supplies in the Baltic states, western Europe, central and eastern Europe and the southern gas corridor.
The Baltic region is a particular area of focus for the Commission because of its lack of connectivity to the rest of the EU. Possible projects eligible for EU support include an expansion of Swinoujscie and new terminals in Estonia, Latvia, Finland and Sweden. In central and eastern Europe, projects such as the Aegean LNG terminal in Greece, Krk in Croatia and Constanta in Romania are on the table.
The European Commission is also looking to strengthen gas infrastructure in western Europe and could support several planned LNG terminals in Italy, France, Ireland, the Netherlands and Malta.
Expensive and complex
How many of these projects will come to fruition is not clear. A 2009 report commissioned by the European Commission argued that LNG projects are expensive and complex. It can also take years for developers to receive consent for new terminals. Several projects to have been cancelled in the last two years, including BG Group’s 8bcm/year project in Brindisi, Italy, have cited permitting procedures among the reasons for their failure.
The 2009 report also expressed concerns that too great a reliance on LNG could concentrate EU supplies in the hands of a small number of countries and therefore undermine efforts to improve supply security.
Nevertheless, analysts do not expect LNG’s share of EU supplies to rise much over the current levels given investments in other supply routes and the rise in demand. Meanwhile, suppliers of LNG argue that the price of gas infrastructure is less than 10 per cent of the final fuel price.
But even if LNG makes little difference to security of supply, it will at least provide price competition for European customers.
Siân Crampsie is a freelance journalist
This article first appeared in Utility Week’s print edition of 30th November 2012.
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