North Atlantic misalliance

The EU and the USA will become competitors in the global liquefied gas market

Europe's demand for natural gas imports will approximately double over the next 20 years. Russia alone will not be able to cover the growing demand, and the EU plans to purchase a significant amount of fuel in the form of liquefied natural gas. Therefore, we should expect intense competition in this market between Europeans and Americans, who have also announced growing needs for LNG imports. This is the main conclusion of a study conducted by the consulting company ATKearney. In order to ensure reliable energy supplies to the EU until 2020, the report notes, investments in this sector will be required at the level of 25 billion euros. The quantitative share of liquefied natural gas (LNG) to supply Europe will triple by then.

Natural gas, after oil, is the second most important primary energy carrier in the EU, covering approximately a quarter of total energy demand in the region. By 2020, gas consumption in Europe will increase by 30%, while domestic natural gas production, as calculated by ATKearney experts, will decrease by 40%. The reason will be a reduction in production in the North Sea, which is being carried out by Great Britain and the Netherlands.

Due to the fact that Europe's existing import capacity is insufficient, the construction of new gas pipelines and facilities to receive LNG exports will be required. While gas imports through pipelines will increase by about half, the share of LNG will grow more rapidly. The construction of gas pipelines costs approximately 1.4 million euros per kilometer, notes ATKearney expert Kurt Oswald. From this simple arithmetic it follows that with supply distances exceeding 4-5 thousand kilometers, gas delivery in liquefied form on special tankers is cheaper than through traditional gas pipelines.

Moreover, experts believe that additional pipeline capacity will only partially cover the growing demand for energy in Europe. ATKearney Vice President Florian Haslauer, who heads the Central European Energy and Supply Advisory Group, estimates that the EU's additional natural gas demand by 2020 will be around 510 billion cubic meters, of which only 342 billion cubic meters will be able to come through gas pipelines. And the difference will have to be covered with LNG. Therefore, Europe will have to import about 168 billion cubic meters of gas through LNG terminals. While pipeline investment levels will begin to stagnate between 2012 and 2020, the role of LNG infrastructure will continue to grow.

Globally, however, there is a shortage of liquefied gas production capacity. The most significant and important ones for Europe are being built in the Near and Middle East, as well as in Africa. This is where the global competition for access to LNG will play out. Moreover, the authors of the report believe that North American and Western European importers will become “intensive competitors” in this region, who will have to invest in the development of not only the infrastructure for receiving liquefied gas, but also in plants for its production.

Since liquefied gas technology makes it possible to transport fuel over long distances, the process of market globalization will become increasingly active. As a result, gas prices can be expected to rise in Europe, as gas prices in Europe today are about 20% lower than average prices in other major consumption centers, be it the US East Coast or Japan.

ATKearney experts believe that by diversifying natural gas imports, Europe will be able to achieve greater energy independence from Russia, but at the same time the EU’s dependence on supplies from politically unstable regions will increase. Currently, about 90% of natural gas imports into Europe come from three suppliers - Russia, Algeria and Norway. “Russia, with a share of European imports of 43.5%, is the most important supplier country and this country will remain so in the future,” emphasizes ATKearney expert Kurt Oswald. - However, in the long term it will be unable to cover Europe's needs for natural gas. After all, China and India are increasingly competing with Europe for Russian gas.” For this reason, ATKearney believes that the gap between supply and demand in the market will grow.

Yuri Shpakov