Home Blogs Energy Connections Part economics, part politics – the role of LNG in Europe

Part economics, part politics – the role of LNG in Europe

By Ed Cox on 23-May-2016

The flood of LNG into Europe, expected by many commentators, has yet to appear.

But deliveries are likely to be higher this year than in 2015, and if demand fails to rise in east Asia in the mid-term, Europe could see a big jump in deliveries later in the decade.

Perhaps more relevant for now is the entry of Poland to the European LNG market, after incumbent PGNiG tendered for June and July cargoes, alongside Lithuania’s rise in LNG consumption and desire to conclude new supply contracts.

The bulk of European LNG import infrastructure is in northwest Europe and Spain. It has never been close to full utilisation and even at the peak of imports in 2010 struggled to hit 50% of capacity.

Pipeline gas has been more competitively priced, especially in the UK, France, Belgium and Germany.

Current consensus is that a global oversupply will mean LNG deliveries to Europe will at least double – to about 60 million tonnes per year – by 2020.

Sellers will need to court buyers and offer at attractive terms which are competitive to the hub price to stimulate demand.

What may have been overlooked is the push from central and east European buyers to lock in LNG as an alternative to dominant Russian pipe supply.

Poland and Lithuania are two countries that do not have such easy access to liquid traded hubs to cover the majority of their demand. There could be several more, from the Baltics to Croatia, and now is the time for these long-discussed projects to be developed.


On top of PGNiG’s foray into the spot market, Lithuania buyer Achema is looking for mid-term volumes out to 2019.

It is important to understand the agenda from these countries where a desire for alternative supply could tie in well with sellers in need of a home for spare cargoes.

From a seller’s perspective, demand stimulation is vital.

New, smaller LNG importers from east Europe to South America and from the Middle East to southeast Asia may not suck up all the additional US and Australian production but they may go some way to mitigating a longer-term oversupply. ed.cox@icis.com