Tough nut for fossil fuel barons right now, with European demand for natural gas dropping.
One big reason is the war in Ukraine – which spiked prices and provided a bracing splash of reality to leaders who may have actually believed Vladimir Putin to be a reliable economic partner, instead of a predatory monster.
Yes, it’s true that some of the EU states have had slow economies coming out of covid, but that does not explain entirely the drop off.
The rush to permit and build Liquified Natural Gas (LNG) facilities in the US looks more and more ill advised.
Graph below shows increasing gap between LNG supply and capacity of “regasfificcation” facilities, which can take the chilled liquid gas and make it suitable for pipelines.
SPC Global:
Despite the added investment into LNG projects, the current regasification facilities have been historically underutilized.
The average rate of utilization for 2024 so far stands at 46%, with the figure having remained below 70% since April 2023, Commodity Insights data showed.
Principally, this is because Europe has experienced two mild winters, combined with added Norwegian supply and renewable generation curbing LNG demand.
David Lewis, an analyst at Commodity Insights, said that “Most of Europe’s regas capacity is located in markets that have low utilization like Spain and the UK, which account for around 36% of regas capacity but only 25% of delivered volumes in 2023.”
“That’s even more stark this year with the UK accounting for only 7% of European imports in 2024 and Spanish utilization has not exceeded 50% for almost two decades.”
The use of pipeline gas allowed European countries to be flexible in issuing spot deliveries to manage spikes in demand, however, the nature of the LNG market requires forward planning to consider shipping times.
Lewis instead said that the added regasification capacity in Europe is there as an “insurance product to capture peak demand spikes.”
I feel so bad for them, poor things.
This article highlights the challenges LNG producers face with underused regasification facilities. The connection between geopolitical events, like the war in Ukraine, and shifts in European energy demand is well explained. It’s interesting to see how mild winters, increased Norwegian supply, and renewables have impacted LNG use. The point about regasification capacity acting as an “insurance product” highlights the complexity of the market.