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Europe needs to give a clear signal on what role gas is to play in its future or risk losing investment in new projects and having to compete with Asia on the global LNG market for supply, Christopher Delbruck, CEO of E.ON Global Commodities, told delegates at the European Autumn Gas Conference in Geneva Wednesday.

"The situation in Europe is changing as our indigenous production goes down," he said.



While Europe may be currently experiencing low gas prices and strong supply driven largely by a steady run of LNG deliveries following oversupply on the global market, that can quickly change.

"If you just reflect on the year that has passed," he said. "Go back to January, February and March last year and suddenly, mysteriously, little gas [was] coming out of Russia. People [were] getting really, really worried about the Ukraine conflict -- it was very much on the agenda. And then you move forward, and gas prices are collapsing in '16, the whole forward curve has gone down. So, shortage/oversupply within a year is up and down."

The same sudden drop could happen to LNG and Delbruck said there should be a push for more indigenous production.

"The question is: how stable is [LNG]? Because it simply will move where the best prices can be achieved. And if prices are high in Asia, it will move to Asia."

"My view is that pipeline gas needs to form the backbone of supply in Europe and LNG will be the swing supply," he said.

But the waning indigenous production is unlikely to be stymied with the current European political rhetoric turning away investment, he said.

"Politically we are saying, 'we don't want gas in the long run'."

By 2050, 90% of energy in Europe is supposed to be non-fossil, despite the increasing import need for gas, he said.

"There's a timing mismatch between what needs to be done and what we have available," he said.

"That kind of mismatch becomes even more interesting when you look at how much gas is contracted under long-term contracts with a minimum delivery obligation, and that share is going down rapidly."

"If we stick to it and say now that by 2050, gas is not supposed to play a role, or only 10%, that is a clear signal that now you have to start counting backwards -- what does that mean? What is the mismatch between it? We need to make clear that economically that is a fairly expensive option," he said.

He said Norway, for example, has the potential to ramp up production but investors are balking at the idea.

"They ask the question: should we even invest into gas fields in Norway? Is Europe going to take the gas?" he said.

"In a strategy for developing the European gas market, I think the very, very first thing that is needed is a very clear commitment on what role is gas supposed to play in Europe."

--Nathan Richardson, nathan.richardson@platts.com
--Edited by James Leech, james.leech@platts.com