European LNG Terminals Face Idling
Many European import terminals for shipped gas may have to be idled because of falling deliveries unless they try their hands at alternative businesses such as ship-fuelling stations.
Terminal operators across Europe have seen deliveries of liquefied natural gas (LNG) drop over the past year as Asian and South American buyers are willing to pay more to meet surging demand.
"European LNG deliveries will drop by 24 percent in 2013, which comes in addition to a 30 percent fall in 2012," said Thierry Bros, senior gas and LNG analyst at Societe Generale.
Adding to the trouble is that many import terminals, especially in continental Europe, are under take-or-pay contracts that force them to accept LNG deliveries even when demand is not there or pay stiff fines.
As a result of such contractual obligations and slack demand, more than a tenth of Europe's LNG is currently loaded back onto tankers for onward transport to higher-paying markets in Latin America orAsia, tripling to 3.8 billion cubic metres (bcm) between 2011 and 2012.
"Everything that brings more flexibility to the LNG shipping chain is vital," said Jean-Marc Guyau, who heads France's LNG terminal operator Elengy.
One option to deal with lower demand is simply to idle capacity, but this comes at a high price.
Spanish imports nearly halved in the January-June period compared with two years ago, to just 5.6 million tonnes.
The resulting strain from low utilisation led Spanish grid operator Enagas to mothball its 7 bcm/year El Musel import terminal directly after the facility's completion last year.
In Spain, which has Europe's biggest LNG import capacity, the financial burden of running idle terminals falls on the state, while traders can take advantage of high Asian and Latin American prices by re-exporting cargoes at record rates.
European LNG import prices are around $10 per million British thermal units (mmBtu), while Asian and Latin American customers pay more than $15 per mmBtu.
There are also problems in France, with utilisation at the Montoir LNG terminal standing at just 12 percent - leading to high maintenance costs for relatively few LNG cargos.
One alternative that some operators are eying but that is still in its infancy is ship-to-ship transfers of LNG, which would speed up re-exports and has been tested at Montoir.
The French port of Dunkirk and Belgium's Zeebrugge have been shortlisted by Russia's Arctic Yamal LNG project to find a facility where its LNG can be transferred from ice-class tankers to conventional LNG vessels.
To address the problems, some operators are also seeking help from Qatar, the world's biggest LNG exporter, which is in talks with several European terminal operators to buy import capacity as an insurance policy in case demand in Asia drops.
These so-called put-option deals would give Qatar the right, but not the obligation, to deliver LNG to Europe, acting as a hedge if Asian demand falls as a result of lower Asian gas usage or rising competition from new suppliers such as Australia.
Talks are being held with importers at the Dutch Gate terminal, where deliveries have hit rock-bottom.
Qatargas has also signed a five-year agreement to supply over a million tonnes of LNG a year to Petronas in Britain, and traders say this may be the first put-option deal agreed.
Another alternative for terminals is LNG as ship fuel.
The Gate terminal is spearheading efforts to become Europe's top ship-fuelling port in response to fading deliveries and maritime rules that will take effect from 2015 aimed at boosting the attractiveness of shifting from oil to cleaner natural gas as a shipping fuel.
Gate received its first LNG shipment from Skangass' small-scale LNG plant in Norway's Risavika in July, followed by two more since. The cargos will be reloaded onto vessels and head to Sweden's Nynashamn terminal, where they will be broken into smaller parcels to power ferries, trucks and industrial customers.
"The shipping industry understands it will have to learn how to use LNG," said Thierry Chanteraud, of Total Marine Energy.
The Netherlands expects the business of LNG for transport to generate 2.7 billion euros ($3.7 billion) for the country by 2030. ($1 = 0.7384 euros)
Copyright Reuters 2013.