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Europe wants gas optionality even as it advances fossil fuel reduction goals

Europe's aggressive carbon emissions reduction goals will provide a stable future for natural gas demand across the continent, rather than act as a deterrent, because of fuel-diversification efforts, a European Commission official said March 13 in Houston.

The comments at the annual CERAWeek by IHS Markit conference came as trans-Atlantic energy leaders debate LNG imports versus pipeline gas imports in Europe. Growth in U.S. LNG exports and changes in the global market have pushed the American commodity as a viable alternative to buyers in Europe that want to reduce their reliance on Russian pipeline gas. U.S. LNG export volumes delivered to Europe outpaced the amount shipped to East Asia in December 2018 and in January, the first time that occurred for two months in a row since American exports of LNG from the U.S. Gulf Coast began in 2016.

"It's true we have pretty ambitious targets in terms of a gradual decarbonization of the energy system," said Paula Pinho, head of the European Commission's policy coordination unit. "Thanks to those targets, paradoxically, there is a future for gas in Europe. It's still a pretty fair share of the energy mix."

Pinho said European gas production has gone down much faster than demand. "So, this ironically has led to the fact that last year we imported more gas than in previous years," she said. "We're looking at diversification, becoming less dependent on single suppliers."

Paul Corcoran, CFO of PJSC Gazprom's Nord Stream 2 gas pipeline project that would connect Russia and Germany, said during the panel discussion with Pinho that the recent surge in U.S. LNG deliveries to Europe reflects lower Asian prices and higher shipping costs to that part of the world. By the same token, Russian pipeline gas can be offered to European consumers at a very cost-effective rate, he said.

"It is [both] the advantage that Europe has and the disadvantage Europe has," Corcoran said. "The good thing is the competition in Europe, and it would be a good thing for European consumers if there was a race to the bottom."

The Nord Stream 2 pipeline project has faced opposition from the U.S., as the American government pushes LNG exports and worries about Russian influence abroad. During a dialogue at the conference with officials from Poland on March 11, U.S. Energy Secretary Rick Perry described the pipeline as "more of a political" than an economic project.

Corcoran said March 13 that there is room in Europe for both supplies of gas to coexist. "It's unfortunate that both in Europe and also now in the U.S., Nord Stream 2 is used by politicians for their own political, local, international goals," he said.

Harry Weber is a reporter for S&P Global Platts. S&P Global Platts and S&P Global Market Intelligence are owned by S&P Global Inc.