As national elections roll on and a new European Union (EU) presidency grasps the reins, industrial natural gas users are pushing for more supplies of the fuel and energy policies in the face of declining LNG imports.
The EU has imported less liquefied natural gas from the globe despite downward pressure on futures prices.
Natural gas imports into Europe dropped almost 12% in the first quarter of 2024 compared to the same period last year, according to the latest Eurostat data. LNG volumes alone dropped 11.4% compared with 1Q2023.
Meanwhile, the value of those imports dropped much more drastically. European natural gas buyers paid nearly 57% less year/year for imports during 1Q2024. The value of LNG imports also dropped almost 54% year/year.
“Nothing has changed about the overall fundamental situation, however, which remains bearish,” analysts with trading firm Energy Danmark wrote in a recent note. “Inventory levels are high and imports to Europe are stable right now.”
Gas Or Brakes
The seeming inability for lower LNG prices to encourage more LNG demand on the continent could mean European benchmark prices are also likely to remain depressed in the long-term, Columbia University’s Ira Joseph, a global fellow at the Center on Global Energy Policy, said.
That could have large implications for U.S. LNG producers, which provided more than 47% of the volumes imported by European buyers in the first three months of the year, according to Eurostat data.
In a recent report from Bloomberg New Energy Finance, analysts estimated LNG to Europe would continue increasing annually until 2026, when volumes could peak. LNG may still average 43% of the continent’s supply mix from 2025-2030 “to counter declining domestic production and curtailed Russian flows,” analysts said.
Wood Mackenzie estimated that the pace of Europe’s electrification could also be slowing as some countries like Italy and Germany invest in more natural gas infrastructure. Those investments could lead to a modest decline in gas demand to 10,416 Bcf/year by 2030, versus 11,087 Bcf last year. The EU’s current target places gas demand around 7,768 Bcf by the end of the decade.
The EU’s major energy regulatory group, the Agency for the Cooperation of Energy Regulators (ACER), also advised leaders to prioritize backing up major investments in renewable energy with peak capacity options and quick-deploying generation. However, in its latest recommendations report published Thursday, ACER did not advocate for a preference between natural gas or hydrogen to back renewable power, calling both a viable option.
On Mute
In the meantime, European spot prices are showing weakness despite the restocking season on the horizon and rising temperatures. The Dutch Title Transfer Facility for August has mostly traded below the $10/MMbtu mark since Tuesday (July 9) after supply concerns from Hurricane Beryl briefly lifted prices.
Rystad’s Wei Xiong, vice president of LNG and gas market research, said in a recent note that steady pipeline imports from Norway and hefty storage on the continent have weighed on LNG demand, pushing it below last year’s levels.
Summer weather could help reverse that trend, especially as Germany anticipates above average temperatures in the next two weeks.
“For now, however, LNG flows to Europe remain muted,” Xiong said.
Getting Real
There are still signs that countries are eager to secure their energy supplies with LNG agreements, even as volatility wanes. Earlier in the month, Poland’s PKN Orlen SA – a growing offtaker of Gulf Coast LNG – disclosed a short-term agreement to supply Slovakia’s ZSE Group. Orlen is expected to meet around 30% of the Slovak utility’s gas demand through 2025 with mostly U.S. LNG delivered to its import terminal.
While initial price shocks after Russia’s invasion of Ukraine in 2022 impacted European industrial users, demand has remained reduced in part due to the EU’s policies. Under the EU’s collaborative plan launched in 2022, countries have committed to voluntarily reducing annual gas consumption by at least 15% of 2021 levels.
As Hungary takes over the EU presidency for the next six months, Europe’s industrial gas users have begun lobbying for what business groups have called more realistic energy and climate policies.
Earlier in the month, members of a competitiveness council formed under the Hungarian presidency’s leadership program met with executives and European Chemistry Council leaders at Mol Group’s headquarters in Budapest. Hungary has notably been one of the few countries in the bloc to continue imports of Russian pipeline gas since the beginning of the war.
“It is in all of our interests that Europe remains strong and competitive. This requires extensive collaboration between industry and policymakers. We ask the leadership of the European Union to offer a predictable and realistic future vision for key market players, rather than excessive regulation and administrative burdens,” Mol Group Board Chair Zoltán Áldott said.
