Page 4 - Euroil Week 40 2019

EurOil COMMENTARY EurOil
Europe struggling to absorb
excess LNG
Europe is expected to struggle to absorb excess LNG on the global market over the coming months, amid high gas volumes in storage and sluggish demand growth
EUROPE
WHAT:
Europe is absorbing much of the excess LNG supply on the global market, but will increasingly struggle to do so.
WHY:
Storage levels in Europe are unusually high, and are unlikely to decrease more than normal in the event of a mild winter.
WHAT NEXT:
A global LNG glut makes Europe, and other regions, less vulnerable to future supply shocks.
A surge in global LNG supply, amid compara- tively weak demand and high storage levels has led to expectations that Europe will struggle to absorb surplus cargoes in the coming weeks. A cold winter could help the market, but current expectations are that it will be mild, with excess LNG supply weighing on global markets next year as well.
In a recent report, consultancy Poten and Partners warned that European storage is already more than 96% full, and that this will limit the potential for additional LNG purchases. Indeed, additional cargoes are expected to nd a home elsewhere, though this could be challeng- ing given weak demand in other regions as well.
Gas glut
is scenario has come about as signi cant new LNG export capacity has started up in the US. Four new liquefaction terminals have come online in the US over the past year, with Elba Island LNG marking the last of these, last week. Another train has also been brought online at Sabine Pass LNG, the rst export plant on the US Gulf Coast.
When these terminals were rst sanctioned, Asia was widely expected to be a major buyer of
US LNG. However, the US trade dispute with China has led to Beijing imposing a 10% tari on US LNG, which was subsequently increased to 25% in June this year. As a result, Chinese imports of US LNG have declined dramatically, compelling US LNG exporters to look elsewhere for buyers. Compounding this is the fact that demand growth in China – and elsewhere in Asia – has generally been sluggish amid a loom- ing global economic slowdown.
Europe has featured prominently in this quest for new LNG markets, as a number of gas importers on the continent have sought to reduce their dependence on Russian gas. Poten noted that Europe took in 49.4mn tonnes of LNG in the rst eight months of 2019, which was nearly double the amount it imported over the same period of last year. But the company added that the increased imports were not a result of higher demand, leaving storage levels high. According to the report, storage levels at the end August were closer to what is typically seen at the peak of storage injection season – around Octo- ber and early November.
Storage levels are expected to decrease over the winter months. According to Poten, Euro- pean storage levels fall by nearly 52bn cubic
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