Europe’s Gas Paradigm in Flux

John Czabo

At the EPRG's event "Europe’s Gas Paradigm in Flux” that took place on 16. May 2018 at CEU, Michael LaBelle, Associate Professor and Jean Monnet Chair in Energy and Innovation Strategies at CEU talked about the shift in the gas sector developing towards multiple suppliers and short term contracts, but emphasized that it is about finding a balance between the traditional way of gas supply through pipeline infrastructure and the new market-based approach and regulation.

András Jenei, Deputy Director CFPA Energy & Business Development Partner at River Commodity discussed the gas dependency of the region, but that gas demand is reducing. Anita Orbán, Vice President, Tellurian described LNG as a commodity and that is finding its market in Europe as well. Katalin Tamás, Advisor to Group CEO, MET Group clarified that US LNG gas might be expensive for Europe still. Róbert Fehér, Business Development Project Manager, FGSZ talked about the importance of the new interconnector to Romania in which FGSZ is involved. John Szabó, CEU PhD student and HAS representative moderated the event.

A summary of the key points:

Both gas production and gas demand in Europe are reducing. Hungary has several projects planned, such as a nuclear power plant and solar power plant, both which need grid upgrades. Therefore, a decision should be made whether gas would be further used for heating or not. For Hungary there are other projects in the neighborhood of interest, such as the Croatian LNH terminal. The Romanian-Hungarian interconnector is the biggest non-Russian source project in the area with aim to contribute to security of supply and decrease of gas price.

In the USA gas is a by-product of oil drilling, thus gas is becoming a liability. The gas price can go up to 0 in order for USA to get rid of it. The US gas although cheap it needs to be liquefied and transported, so by the time in reaches Europe it gets expensive. The US LNG gas is brought to the Gulf of Mexico and then in sold where the price is the best. US companies welcome competition as the process generates innovation. Most important in order to stimulate competition is to have the market place free for access, and consumers would benefit from the process. Most important costs of LNG are for making it liquid, the gas price and financing. A competitive LNG market player if focuses on reducing these three costs, will ultimately offer better price of LNG.

Lithuania has built a LNG terminal and at the same time the gas from the pipeline decreased. Lithuania now uses both commodities. Lithuania’s LNG terminal was a political project and the consumers are paying for it. China is a big consumer of LNG and its demand is structured and elastic. The new Northstream project is a political project enabling gas supply through Germany which would increase the price of gas for the region.

The traditional gas price is linked to the oil price and that makes the traditional gas more expensive. Last year LNG had the strongest growth, out of which the biggest took place in Europe. This year LNG is continuing to grow as well. LNG is becoming a liquid commodity, is more flexible and tradable. Long-term contracts are disappearing. LNG is globalized, but there are price differences in the world, so more work has to be done in trading. LNG enables gas supply on the small scale leading to competition on the demand side as well. LNG can generate demand in regions with limited access to energy. LNG is almost a commodity, has potential for driving change. Governments decide about infrastructure and that ultimately impacts consumers.  

The discussion at this event shows a development of the situation with gas and LNG in the region if compared to the discussion about half a year ago on a similar topic also hosted by EPRG which can be found here.