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A Brief View on LNG in Europe

US-China trade dispute has pushed LNG to Europe, but the overall picture is more nuanced

Explosive Growth

European LNG imports have seen dramatic growth over the past year. Total offtakes grew by 82% year-on-year in June to 7.54mmt. This contrasts with the negative growth seen between August 2017 and September 2018, when imports seemed fixed on a gentle downward trajectory.

US LNG seeking refuge in Europe

A key factor in the explosive growth of European LNG imports has been an ongoing trade dispute between the United States and China. The two countries began implementing extraordinary tariffs in July 2018, with China imposing a 10% tariff on LNG in September that year. This made US LNG economically unviable for an already difficult Chinese gas market.

Only two LNG cargoes have left the United States for China to date this year, arriving at Jiangsu LNG aboard the Adam LNG (IMO 9501186) in February and aboard the BW Paris (IMO 9368302) in March, our data shows. This is in stark contrast to the 30 cargoes delivered in 2018.

Even if attributable European re-exports to China are considered, a maximum of four cargoes of US LNG has reached China to date this year, our data shows. Concurrently, the number of US cargoes previously going to China have now been diverted to Europe.

But US LNG tells only part of the story

Not all of the European LNG import growth can be attributed to US LNG, though. Offtakes from other sources – chief among them Qatar and Russia (not including Russian reloads) – across European terminals outweighed the impact of US LNG. 

Other suppliers such as Trinidad & Tobago and Norway have also expanded their share of European LNG supply since September 2018.

Overall, these increases outweighed a net decline of African LNG exports to Europe, with fewer shipments by Nigeria, Algeria and Angola outweighing an increase by Equatorial Guinea.

Europe’s demand centres

The vast majority of LNG export growth to Europe arrived at a handful of countries, namely France, the UK, Spain, Italy and the Netherlands. Nevertheless, the picture is nuanced. Whilst UK LNG demand rivalled the explosive growth seen in Spain and France both in quantity and rate, it saw a swift retreat in June. Meanwhile, LNG exports to Portugal, Poland and Italy have not grown as explosively but have yet to reverse trend.

Europe is experienced in re-exports

Meanwhile, not all LNG imports remained on the continent. More than 7.4mmt has been re-exported since August 2017. The top destinations for such re-exports were in the Pacific (e.g. China, Japan and South Korea), but smaller LNG buyers such as India, Jordan and Pakistan also took advantage of arbitrage to benefit from surplus European cargoes, our data shows.

Europe’s centres of LNG re-exports were the Netherlands, Belgium, France and (to a lesser extent) Spain.

Belgium is among continental Europe’s smallest LNG importers. Nevertheless, the country increased its re-exports as total imports grew, before cutting back to bunker LNG in preparation for summer this year. Re-exports began again between April and June.

Neighbouring Netherlands – benefitting from its own (albeit ageing) North Sea gas fields, with the Groningen field ranking among the top ten in the world – has traditionally been a keen re-exporter as its own economy is flush with gas. At times the Maasvlakte Gate Terminal in Rotterdam drew on storage to re-export in 2018.

France and Spain, meanwhile, are continental Europe’s most significant importers engaged in re-exports.  France was frequently engaged in re-exports in 2018 but stopped doing so as it began preparing for summer.

Spain, on the other hand, stands apart as its re-exports cluster around two brief periods in 2018 whilst its imports saw strong growth since January 2018.

Europe’s LNG demand picture therefore is highly nuanced. What emerges, though, is a clear drive towards higher LNG imports. Although the US-China trade dispute has captured headlines, it is structural demand growth that is changing the European LNG landscape instead of a flush of orphaned US LNG.