Marcel Dietsch: LNG Prospects in Europe and Natural Gas Co-operation

Marcel Dietsch: LNG Prospects in Europe and Natural Gas Co-operation
The European Union’s energy security strategy rests on three pillars: 1. diversification, 2.
liberalisation and 3. better energy efficiency. Increased diversification of energy supplies is to be
achieved through increased use of a) renewable resources, b) new transport routes and c) new
geographical sources of conventional supplies such as oil and natural gas. Liberalisation entails
policies aimed at introducing more competition and market mechanisms especially in the existing
natural gas market. It also entails deeper integration and better interconnection of national markets
in Europe. The increased use of LNG is related in many ways to the first and second pillars of the
European energy security strategy.
My presentation will examine whether and to what extent LNG can improve European energy
security defined as the absence of physical delivery interruptions of affordable and reliable energy
supplies. Two issues will be analysed in particular, the first being related to the short-and mediumterm situation and the second being concerned with long-term developments. First, while LNG
allows European countries to diversify its sources by buying shipments from e.g. Nigeria and
Yemen—i.e. sources that are independent of traditional pipeline routes and suppliers—one must
look carefully at dependencies and existing and planned LNG regasification capacities in detail. I will
present the countries in Europe with high import dependencies and show where current and future
LNG receiving terminals are located to show whether – in the absence of a more comprehensive
network of interconnectors between EU member states – LNG actually contributes to improved
short-run energy security.
The second issue is related to the pricing of gas as an energy security concern. At current import
levels of about 15%, LNG contributes to the EU’s energy security as a means of diversification. It also
helps reduce market power of dominant pipeline suppliers such as Algeria and Russia, which enjoy
vast market shares and even quasi-monopolist positions in some EU countries. LNG is therefore the
price limiting supply in parts of Europe. Yet, all of the EU’s LNG suppliers are members of the Gas
Exporting Countries Forum (GECF). The GECF represents the world’s leading gas producers and aims
to promote their mutual interests in order to derive the maximum value from their natural gas
reserves. While not engaging in OPEC-style quotas at the moment, GECF members cooperate by
exchanging views and planning to coordinate project development, supply and demand balances,
exploration, production and transportation costs. Hence, the moderate use of LNG does contribute
to the security and diversity of EU gas supply at present. However, the benefits may not be so
pronounced if LNG becomes more widely used in the coming decade since cartelisation of the LNG
market (i.e. higher prices) will become a real risk for consuming countries in Europe. I will also
mention the recent developments regarding unconventional gas resources in the US and how this
might impact LNG and the European market in the long-run.