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Second US LNG cargo lands in Europe as tanker docks in Spain

London — * First cargo delivered to Portugal in April
* Still no significant volumes coming to Europe
* No US LNG yet sent into Northwest Europe

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A cargo of US LNG on Friday landed at Spain's Murgados LNG import terminal, making it only the second cargo to reach the European market since US LNG exports began at the end of February.

According to cFlow, S&P Global Platts trade flow software, the Sestao Knutsen LNG tanker entered the terminal early Friday having spent seven days circling off the coast of northern Spain.

It left the Sabine Pass liquefaction facility on July 4 with a slot to enter Murgados Friday.

Article Continues below...

It is the second US LNG cargo to land in Europe after the Creole Spirit offloaded at Portugal's Sines terminal at the end of April.

A total of 15 US LNG cargoes have been delivered from Sabine Pass since the first in February, with the majority sent to the South American countries of Brazil, Argentina and Chile.

Others were delivered into the Middle East -- Dubai and Kuwait -- while one went to India.

Four US LNG cargoes are currently at sea, with the most recently loaded cargo aboard the Maran Gas Apollonia set to be the first to pass through the recently expanded Panama Canal.

Much industry attention is being focused on how much US LNG will come to Europe given increasing competition for buyers in the oversupplied European market.

The fact that Portugal and Spain are the first European countries to import LNG from the US is telling.

The Iberian peninsula is considered an "island market" with poor interconnection to the rest of Europe, so the delivery of US LNG into the region is not likely to be seen as a sign that US LNG will take hold in the wider European market.

In addition, the biggest supplier to Europe -- Russia -- does not supply the Iberian market with its pipeline gas, so it is unlikely to be concerned about US LNG headed to southwestern Europe.

ALGERIAN COMPETITION

Algeria, on the other hand, will be keeping a close eye on US LNG exports to Portugal and Spain.

Its exports by pipeline last year totaled around 27 Bcm, with more than half of that headed for Spain and Portugal.

According to Platts analysis, Portugal can account for as much as 12% of Algeria's gas exports by pipeline and Spain some 44%.

Algeria's response to the threat of US LNG imports into southwestern Europe seems to have been strong.

So far this year Algerian gas flows to Italy have averaged 46.4 million cu m/d -- more than double the 2015 average of 19 million cu m/d and the 2014 average of 18 million cu m/d, according to data from Platts analytics unit Eclipse Energy.

And Algerian pipeline exports to Spain in the first half of the year averaged 40 million cu m/d, up slightly from 38 million cu m/d in the same period of 2015.

Certainly any US LNG exports to Spain would be seen as a direct threat to Algeria's market share.

US LNG pioneer Cheniere said late last year it expected as much as 50% of its LNG to end up in Europe.

By 2020, it is expected that the US can export as much as 100 Bcm/year of LNG -- enough to supply a quarter of the EU market.

With LNG prices in Asia still in the doldrums, Europe is seen as a market of last resort for US LNG given the strength of the European gas network and its ability to absorb excess LNG.

Delivered US LNG cargoes so far in 2016 (units mil cu m):


Source: Eclipse Energy

--Stuart Elliott, stuart.elliott@spglobal.com
--Edited by Jonathan Fox, jonathan.fox@spglobal.com