EU Gravitates Towards LNG Expansion

The European Union is forging, albeit with considerable debate and obstacles due to the national strategies of its member states, a long-term Energy Union that has natural gas as its basic component. EU energy diversification tools, which include LNG, see LNG steadily emerging as a basic method to achieve its Energy Union goals.

For the time being, Northern and Western Europe are far better placed than Southern Europe in terms of LNG infrastructure. Most recently, Vice President of the European Commission in charge of Energy Union Maroš Šefčovič discussed important notes during an energy security session organized by European authorities in Brussels.

New suppliers are needed in order for such a reliance on LNG to have validity for the long-term. Therefore, countries including the US, Algeria and Qatar are said to be already engaged into talks with Brussels for eventual supply routes into the Union. Additionally, the Southern Corridor pipeline project, due to be completed in 2020 and comprised of the TANAP-TAP-IAP system of pipelines, opens up the Azeri gas market to the EU and provides a basis for an eventual inclusion of Caspian producers such as Turkmenistan and Uzbekistan. These additional quantities would be used not only for consumption by the member states, but also used to establish gas trading hubs and facilitate import-export platforms based on LNG trade.

Croatia is already moving forward by establishing an LNG terminal in the Adriatic coast in the island of Krk that should commence its construction by late 2016 and be operational in early 2020. This project is included in the EU's list of energy plans for financing as a major energy security project. The final aim of Croatian authorities is to import gas and then re-export via a set of interconnections up to Poland and down to Greece via the so-called Aegean-Baltic Corridor. Additional plans may include the introduction of this LNG source into Ukraine via Hungary and Slovakia. The annual capacity of the Krk LNG terminal is projected to be 6 bcm which far exceeds its domestic needs.

In the meantime, Greece is concluding through DESFA the upgrade of its Revythousa LNG terminal, which is aimed to be coupled by an additional terminal in the Northern part of the country, that after 2020 would bring newly sourced quantities to be transmitted into the Bulgaria, Romanian and Hungarian systems via the proposed vertical corridor.

In Italy the Brindisi LNG Terminal was planned, until its cancellation in 2012, and was projected to have a yearly capacity of 8 bcm. Despite its termination, calls by the central Italian administration appeared in the local press for a re-examination of this project, albeit with a reduced capacity and it could well be an additional point of entrance for this type of gas into Southern Europe.

Turkey, although not an EU member, is nevertheless a crucial link for the Union’s proposed gas projects. It has also started investing in LNG by having the EgeGaz Aliağa Terminal near Izmir and plans for a second one in the Aegean shores with the collaboration of Qatar.

In addition to the above, the long-standing project of Cyprus to establish an LNG terminal that will exploit recent East Med discoveries should also be taken into account, despite the fact that over the past few months, investments have effectively stopped as a result of poor exploration results in sea blocks explored by the ENI/Kogas consortium.

In its latest report, Athens-based Institute of Energy of South East Europe assessed that for the Vertical Corridor to be successful, it needs to have a significant LNG component into it. Due to its favourable maritime geo-economic placement, Greece could play a crucial role.

It should be noted that LNG infrastructure with regards to future EU policy is costly. It is a sourced commodity that tends to fluctuate in pricing compared to conventional long-term pipeline pricing. Moreover, LNG terminals are able to process low and medium amounts of gas needed for EU households and industrial consumption per annum, while LNG producers worldwide effectively comprise an oligopolistic market, with many of those already engaged in long-term contracting, thus leaving in certain cases, small quantities on the spot market.

For example, weather conditions or special circumstances such as the Japan nuclear disaster of 2011 saw LNG prices skyrocket and supplies tighten for the next 18 months.

LNG by definition is a far costlier gas product due to the liquifaction and re-gasification process and all the assorted transportation and security costs. Secondary investments are also necessary to bring resources further inland to important industrial zones. Should Europe proceed with the abolishment of coal and reduces its reliance on nuclear energy, it will certainly need additional quantities of natural gas in the coming decades that will surpass by far even the most ambitious LNG infrastructure model. Therefore, it is safe to assume that the EU Energy Union is far from being theoretically conceived and we should witness quite a few changes and amendments concerning the real penetration of the LNG sector in Europe.

Natural Gas Europe welcomes all viewpoints. Should you wish to provide an alternative perspective on the above article, please contact editor@minoils.com  

Kindly note that we only lightly edit content for grammar and do not edit externally contributed content.