LONDON Feb 21 U.S. liquefied natural gas (LNG) by the end of the decade is likely to challenge Russian gas for market share in Europe as the region becomes increasingly dependent on imports, ConocoPhillips' head of LNG trading said.
A surge in production worldwide, driven by new projects in the United States, Australia, East Africa, Russia and Canada, could double LNG output to 600 million tonnes annually from 2018 and provide ample new supply to global markets, industry estimates suggest.
Kicking off the export growth, after years of stagnating supply, will be Exxon Mobil's Papau New Guinea LNG plant in the third-quarter of this year, followed by BG Group's Queensland Curtis project in Australia by year-end.
Most new Australian and east Africa supplies are expected to reach Asia to fill demand, while significant output from the United States and elsewhere is expected to arrive at European terminals.
"We believe that the European gas market will be a balancing market for global gas," said Birger Balteskard, global LNG marketing manager at ConocoPhillips, told the International Petroleum Week industry conference.
Balteskard said Europe's dependence on gas imports will grow as its domestic fields age and that America's proposed LNG export terminals will help meet that need.
"There is a potential large gap between demand and supply into Europe. We think by 2025 that will be as much as 25 (billion cubic feet) a day, which is significant," Balteskard said.
The United States, meanwhile, is producing record amounts of gas from shale, and more than a dozen export projects have been proposed, some of which could target Europe from 2015 onwards.
Europe's biggest supplier Russia charges high prices for supplies, offering U.S. LNG shippers a chance to grab market share through cut-rate deals.
In Europe, a case could be made that "there will be competition between Russian pipe gas and LNG from the States and potentially East Africa", Balteskard said.
ASIA STEPPING UP
In Asia, gas demand has outstripped supply. Japan, the world's top LNG buyer, has shifted more to gas following the 2011 Fukushima nuclear disaster, while second-biggest buyer South Korea has stepped up purchases after a nuclear safety scandal.
Asian gas prices currently trade above $20 per million British thermal units, while European prices are around $10 per mmBtu.
Atlantic Basin LNG producers have in recent years diverted cargoes to the higher-paying Asian and South American markets, halving Europe's intake.
But as producers open the taps from new projects to fill Asian demand, and as Mexico and some South American energy producers work to wean themselves off costly LNG imports, deliveries to Europe could rebound.
Some uncertainties remain, however, that could still skew this scenario.
If China's demand grows faster than expected, it could potentially limit the availability of gas supplies to Europe. Similarly, any decision by top LNG importer Japan to uphold its atomic energy ban means it will need gas to meet any growth in energy needs.
"Assuming East Africa, the U.S. and Australia do happen the way we think, the main thing to look at is what is going on in China. How much energy will it be able to absorb?" Balteskard said.
Trending On Reuters
A long-awaited Indian bankruptcy code may soon win parliamentary approval, but struggling creditors – above all state banks trying to recover $100 billion in bad loans – shouldn't start celebrating just yet. Full Article | Factbox