London — Intensifying competition between the United States and Russia is driving record-breaking LNG imports into Europe's most liquid natural gas trading hubs, with the rivals accounting for more than half of December volumes shipped to these areas, analysis of S&P Global Platts Analytics data shows.
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Amid geopolitical tensions over Russian pipeline supply in Europe, the US now faces additional economic pressure from growing LNG production originating in Russia, and will have to contend with a pincer move from these two sources of natural gas if it is to consolidate its gains of market share in European LNG, and for so-called "freedom gas" to live up to its name and liberate Europe from Russian gas dependency.
Aggregated monthly imports of LNG into France, Spain, Italy, Belgium, the Netherlands and the UK hit 10 Bcm of natural gas equivalent for the very first time in December, equating to 7.25 million mt of physical LNG deliveries during this time, a marginal increase from the previous month but up 22% year on year.
US LNG exports to the region trumped Russian volumes, as it continued to retain the market leadership it suddenly achieved in November, by delivering 27% of total volumes. Russia, aided by the recent commissioning of an ice-breaker vessel, gained to assume second place with 24%.
The US exported almost half of its entire December production to Europe, while Russia typically delivered virtually all of its volumes from the Yamal peninsula to the region. Moreover, additional production from liquefaction capacity that came online this year in these countries was delivered almost exclusively to, and absorbed by, Europe.
Recently imposed US sanctions on pipeline-laying vessels helping construct Russian pipelines coincided with the elevated US exports to Europe, while directly interrupting the progress of the Nord Stream 2 pipeline, set to stretch between Russia and Germany.
However, the US now finds itself in a position where greater Russian pipeline exports could be angled for summer delivery following the 65 Bcm/year Ukraine-Russia transit agreement for 2020, with the US maneuver arguably and inadvertently bringing Russia "to the table" prior to its signature.
This, coupled with sustained Russian LNG exports, could limit US export potential to Europe, although opportunities within the region still remain.
The UK was Europe's leading consumer of LNG in December, with the country securing 30.7% of seaborne exports to liquid markets. This smashed its own record for monthly receipts, previously set at 2.311 Bcm back in April 2019, owing to substantial Qatari volumes balancing global surplus at the time.
Russia-US competition was at its hottest in the UK, with these countries sending nearly two-thirds of the shipments welcomed into UK terminals in December, and further export potential was evident since the remainder of UK imports were sourced from eight different countries.
Source diversification was a theme in December, with cargoes outside of the five more established exporters to Europe -- namely Russia, the US, Qatar, Algeria and Nigeria -- accounting for 20% of total deliveries to Europe's trading hubs, almost doubling from November.
US exports very much dominated in the UK, where spot purchases were much more preferable, while Spain -- which accounted for 16.8% of European supply in December -- was also a key target for spot US supplies. Russia, which has more extensive long-term agreements for LNG export, additionally focused on Belgium and France.
One of the biggest surprises was tumbling Algerian exports to the European LNG market, which fell to just 100,000 mt in December, with the majority of the resultant shortfall left in France and Spain, which were the only two countries to see a reduction in imports on the month.
Spot exporters seized the opportunity, with Trinidad and Tobago breaking into the top five suppliers in December at Algeria's expense.
However, the growing importance of the UK as Europe's largest LNG market could see the Russian-American duopoly strengthen its grip, also at the expense of smaller producers.
Despite coming a distant third in terms of December exports, Qatar remains a key player in the European market for LNG, and a latent challenger to the emerging duopoly. It remains the world's largest producer of the commodity, exporting 78.6 million mt in 2019, with 16.1% of European volumes sourced from the Middle Eastern country in December.
Due to heightened summer exports to the UK market -- also a key location for global portfolio players with long-term Qatari purchase agreements -- Qatar was the primary source of European LNG in 2019. It supplied 26.24 Bcm of natural gas equivalent in 2019, approximately 28.5% of the overall aggregate, which itself was impressively 70% higher on the year.
Given that there has been little change in monthly Qatari production over the course of the year, it follows that production volumes have been redirected to the East in Q4. By extension, the current duopoly could become compromised should exports from either the US or Russia not be sustained, or summer Asian demand weakens to such an extent that Qatari shipments return to Europe in force.
However, Qatari exports themselves face adverse geopolitical circumstances, and could face disruption amid escalating tensions between the US and Iran following the former's killing of Iranian commander Qassem Soleimani last week, and the latter's subsequent retaliatory attack on a US military base in Iraq Wednesday.
Iran has previously threatened to blockade the Strait of Hormuz, a critical shipping channel for Qatari LNG, with any closure or limitation of shipping through this area, for whatever reason, likely to reduce global LNG supply.
|European LNG sourcing in Q4 (number of shipments)|
|DELIVERY: UK||19-Oct||19-Nov||19-Dec||TOTAL||DELIVERY: FRANCE||19-Oct||19-Nov||19-Dec||TOTAL|
|United States||2||10||12||24||United States||1||8||6||15|
|Trinidad and Tobago||0||2||6||8||Algeria||7||10||1||18|
|Algeria||1||0||1||2||Trinidad and Tobago||0||0||1||1|
|United States||2||0||1||3||United States||1||3||3||7|
|Trinidad and Tobago||0||0||1||1|
|DELIVERY: ITALY||19-Oct||19-Nov||19-Dec||TOTAL||DELIVERY: SPAIN||19-Oct||19-Nov||19-Dec||TOTAL|
|United States||1||1||2||4||United States||5||10||5||20|
|Trinidad and Tobago||1||3||0||4||Trinidad and Tobago||0||2||2||4|