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APPEC: LNG regasification capacity more critical than supply for Europe-Vitol

Highlights

Tellurian focuses on finding equity investors for Driftwood

Low demand will help balance gas market imbalances

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  • Eric Yep    Ivy Yin
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  • Norazlina Jumaat
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LNG regasification capacity and the availability of slots for discharging LNG cargoes are more important for Europe at this point in time than to build supply projects, which can happen later, Russell Hardy, Vitol's chief executive said at the Asia Pacific Petroleum Conference in Singapore Sept. 26.

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Hardy said US gas production continues to increase and there is more gas available in the US than it needs, so it is sensible for them to export as the political environment in the last 12 months is focused on supporting Europe with those LNG exports.

"But an LNG plant takes four or five years to develop," Hardy said. "So, a lot of the requirements, a lot of the investment effort, is on the receiving end at the moment with people trying to build receiving capacity so that Europe has an alternative to the Russian gas supply that's been lost."

He added that Europe needed such infrastructure, and subsequently, it needed to backfill the supply to fill that infrastructure.

"Today, European infrastructure is basically full. Every slot there is to discharge LNG has a cargo attached to it and so at this point really we need more slots," Hardy said, adding that the slots are more important at the moment because there is immediate need for regasification.

Two of the three offtake agreements tied to US-based project developer Tellurian's proposed Driftwood LNG export terminal in Louisiana -- one with Shell and the other with Vitol -- were terminated Sept. 23, the developer said in a US regulatory filing.

In August, Tellurian had amended the offtake agreements with Vitol and Shell to revise language about notice of termination after a deadline for the developer of the export project to meet certain conditions passed.

Tellurian has said in a statement it would now prioritize securing equity partners to support the construction of Driftwood and that it believes the termination of the two offtake deals would provide flexibility in its efforts.

"Driftwood remains an interesting project for Vitol and I think the Tellurian guys are just reassessing the best way to find the equity to build that project because each of those projects need a huge amount of money," Vitol's Hardy said.

"It's much more expensive to build an LNG liquefaction plant than it is to build a receiving terminal. And so they need to find the equity investors and push forward with their project, which I think is what they're focused on," Hardy added.

Low demand will balance gas supply

Since last winter, there have been a series of supply disruptions related to the Russia-Ukraine war, which has put enormous strain on the supply-demand dynamics for natural gas in Europe, Hardy said.

He added that Europe has built gas inventories over summer to a level that is about normal for this time of year, which will give some supply security for the winter.

"But the reality is we've just got a lot less daily supply coming into Europe, and so we're very dependent on those inventories to get us through winter. So the price continues to try to ration demand," Hardy said.

He added that high prices are really trying to scare industrial demand away, which is not a great thing, because it has economic consequences.

"We're beginning to see a bit of a slump now in gas demand. And obviously, that's going to help rebalance the market, but it's going to come up come at a pretty severe economic cost," Hardy added.

The priority in the power sector is to use what remaining capacity there is for other fuels, he added, which means burning a little bit more coal this winter.

"I don't think anybody's happy about it, but it's just the simple reality of a difficult situation that we're in," Hardy said.

Europe is borrowing LNG supply from Asia that would typically be going to China or Pakistan or Bangladesh, Hardy said, all because Europe is paying a high price, which is simple economics.

"There isn't enough gas to go around for the world at the moment with the Russian cuts. We're just paying more than the rest of the world, but the rest of the world is replacing it with coal as well," he added.