In a market where delays and outages are never far off, the near-flawless start of U.S. liquefied natural gas plants will have European energy traders and executives abuzz when they meet this week at Flame.
How that extra gas will add to a global glut as Russia, the world’s largest exporter of the fuel, seeks to pump record volumes to the region will likely dominate talks among the 600 or so delegates meeting for Europe’s biggest gas conference in Amsterdam. Supply issues, the outlook for demand and pricing are also on the agenda.
1. U.S. LNG: Just the Start
Since Cheniere Energy Inc. started exports from its Sabine Pass facility in Louisiana in February last year, three of as many as six planned production units have fired up and shipped more than 100 cargoes. Unlike at recent plants in Australia and Angola, there were no major setbacks.
The Groningen field output declines have “as big an impact as Fukushima” in terms of “how much it was producing few years ago and how much it is producing now,” Cheniere’s Walker said.
With LNG supply expected to exceed demand into the next decade, exporters are targeting emerging markets in Asia, Africa and the Middle East that often turn to imports via floating storage and regasification units, faster and cheaper options than land-based terminals. FSRUs will be among the most-talked about topics as “a major driver of LNG demand in an oversupplied global gas market,” BI analyst Elchin Mammadov said.
“The growth prospects in the global market really depend on unfamiliar markets that are emerging and are not so transparent,” Allen said. “I would expect a lot of discussion about those. One big ‘dark horse’ at the moment might be the prospects for LNG into the Philippines.”
For Europe, the question is whether a recovery in demand will be sustained, Mammadov said. European consumption rose for a second year, advancing 7 percent in 2016 amid the fuel’s increasing popularity to generate power use for gas to generate power and colder winters.
5. Oil-linked pricing
With Gazprom executives speaking at Flame, the subject of linking gas prices to oil in long-term contracts is also high on the agenda.
While “competition with other hydrocarbons locks natural gas in price envelope,” crude rates are still the main driver for European gas prices because the correlation is still very high, according to Gazprom’s Komlev.
Pressed by buyers seeking changes to how gas is sold within Europe, the exporter has in recent years moved away from indexing its long-term contracts to oil with a time delay of six to nine months. Spot and hybrid pricing, a combination of spot and oil linkage, cover a little more than 50 percent of total volumes sold, Gazprom Deputy Chief Executive Officer Alexander Medvedev said last month.