LNG in Europe: An Overview of European Import Terminals in 2015
This report (click here to review the report) focuses on a specific aspect of the liquefied natural gas (LNG) supply chain: the import facility. LNG import facilities are the final destination of LNG carriers and where LNG is returned to a gaseous state so that it can be fed into gas transmission and distribution grids.
This report provides an overview of the LNG import terminals in Europe today: existing, under construction and planned. It also looks at how Europe’s existing import terminals are adapting to reflect changes in the global LNG market.
Demand for LNG in Europe
Declining North Sea gas reserves, increased production costs, and the deregulation of European gas and electricity markets all combined to create new opportunities for LNG in Europe.
Even though Europe’s gas demand is decreasing, its dependence on gas imports is increasing. The European Union (EU) imports approximately 53% of the energy it consumes, at a cost of more than €1 billion per day. On average, the EU’s 28 member states import about 66% of their natural gas, and eight of them have 100% gas import dependency, with Russia as the single source of imported gas (by pipeline) for Finland, Estonia, Latvia, the Czech Republic and Bulgaria. Russia supplies approximately 33% of Europe’s gas, and such a strong dependence on a single external supplier poses an ever-increasing threat to the security of Europe’s gas supply, as evidenced by the confrontation between the Ukrainian government and Gazprom. The share of LNG in total gas supplies across the EU increased from 28% to 32% between 2009 and 2011, and then decreased to 19% in 2013.
Europe’s prosperity is ultimately contingent upon a stable, abundant and competitively priced supply of energy to the region. The EU Commission (the EU’s executive body) sees the import of LNG as essential in achieving its objective of diversifying sources of energy supply to its member states, and as an important part of the EU’s future energy mix. LNG is more flexible than pipeline gas, and in the context of decreasing European gas demand, reduces demand for pipeline gas.
Europe’s LNG Regasification Capacity
All of Europe’s LNG terminals are import facilities, with the exception of those in (non-EU) Norway and Russia, which export LNG. There are currently 23 large-scale LNG import terminals in Europe. Of these 23 terminals, 21 are in EU countries (and therefore subject to EU regulation) and two are in Turkey (which is a candidate for EU membership).
Europe’s existing regasification terminals show a balanced distribution along Europe’s coastline, with most of them situated in northwest and southwest Europe. The current LNG-receiving countries in Europe are Belgium, France, Greece, Italy, Lithuania, the Netherlands, Portugal, Spain, Turkey and the UK. Lithuania became the most recent European importing country, and Poland will be Europe’s next LNG-receiving country.
In 2014, total regasification capacity in Europe’s 23 large-scale LNG terminals was 201 billion cubic meters (bcm), which is sufficient to cover approximately 40% of Europe’s gas demand. Four new European LNG import terminals are currently under construction in France (Dunkerque), Poland (Świnoujście) and Spain (Tenerife and Gran Canaria). With the addition of these terminals, the annual regasification capacity in Europe will increase to 221 bcm a year from 2019.
Average capacity utilization rates in European regasification terminals have fallen dramatically since 2009, having decreased from 53% in 2010 to 25% in 2013 and 2014. The Council of European Energy Regulators (CEER) estimates that 137 bcm of regasification capacity in the EU were not used in 2013. The primary reasons for low utilization rates are stagnant demand for natural gas in Europe due to subsidized renewables, the continued supply of cheap coal, and higher demand and prices in Asia and South America that have driven LNG elsewhere. Further, in recent years it has generally been more cost-effective for many European market participants to meet demand by reducing the portion of gas they import through LNG, and increasing supply from other sources. However, after three years of decline, LNG imports into Europe increased in the last quarter of 2014, as the price difference between Asia and Europe almost vanished.
The role played by LNG is different across European countries, depending mainly on supply characteristics, geographical situation, capacity of import terminals, level of gas demand, alternative sources of supply and downstream market development. Spain’s LNG terminals account for the highest regasification capacity in Europe (six operational terminals), followed by the UK (three operational terminals) and France (three operational terminals).
Planned European LNG Import Terminals
In seeking to create an integrated and secure EU energy market, the EU Commission has drawn up a list of 248 projects of common interests (PCIs) for the energy sector. The PCIs include 12 possible LNG import terminals to be located in Croatia, Estonia, Greece, France, Ireland, Latvia, Poland and Sweden.
There are currently 20 large-scale LNG import terminals being considered in Europe, all of which would be located within the EU, except the planned terminals in Ukraine, Russia (within the Russian exclave of Kaliningrad Oblast, which sits between Poland and Lithuania), Albania and Turkey – the latter two countries being candidates for EU membership. Eight of the planned terminals will represent the first large-scale LNG import terminal for Albania, Croatia, Estonia, Ireland, Latvia, Malta, Romania and Ukraine. Seven of the planned terminals – Albania, Croatia, Greece, Ireland, Malta, Romania, Ukraine and the UK – will be floating facilities. In October 2015, Gasum announced that it had canceled the proposed Finngulf LNG project in Finland, citing insufficient domestic gas demand to support the project.
In addition, there are numerous plans for expansion of existing terminals or terminals currently under construction, including in Belgium, Croatia, France, Greece, Ireland, Italy, the Netherlands, Poland, Spain, Turkey and the UK.
Regulation of European Import Terminals
The European Commission has introduced three successive directives designed to facilitate competition, create a single Europewide gas market, and provide a clear and stable regulatory environment for Europe’s gas sector. In Directive 2009/73/EC of the European Parliament and of the council (the “Third Gas Directive”), the European Commission introduced further measures requiring member states to provide open access to gas infrastructure (including LNG terminals) on fair, transparent and nondiscriminatory terms. The conditions and tariffs of third-party access (TPA) to regulated LNG terminals must be published by terminal operators, as well as approved by the national regulator.
Like its predecessor, the Third Gas Directive anticipates a system of regulated third-party access to LNG-receiving terminals and requires LNG terminals in the EU to provide transparent and non-discriminatory access arrangements. Developers of new import facilities and existing import facilities for which new capacity is being developed may obtain an exemption from these TPA requirements from the national regulator if the project satisfies certain criteria. So far, exemptions from the TPA regime have been granted to five of the EU’s operating LNG regasification terminals: three in the United Kingdom (Grain LNG, Dragon LNG and South Hook LNG), one in Italy (Rovigo) and one in the Netherlands (Gate). Where a TPA exemption has been granted, the owner of the LNG terminal can negotiate contracts directly with its primary shippers/customers; however, the national regulator monitors anti-hoarding mechanisms and ensures that shippers have access to a sufficiently transparent secondary market. The number of active LNG shippers is higher in terminals subject to regulated TPA than in TPA-exempt terminals.
The European Commission is looking at how the existing regulatory framework applies to the new services being offered at many of Europe’s import terminals to ensure that any barriers to the further development of new services and the use of new technologies are removed. Overall, existing EU regulations have accommodated the development of effective congestion management procedures (CMPs) and functioning secondary capacity markets at the EU’s LNG import terminals.
Evolving Use of Europe’s LNG Terminals
Europe’s LNG import terminals have demonstrated that they are able to respond to prevailing global LNG market dynamics and low rates of regasification capacity utilization. Many of them have adapted, or are adapting, their facilities to provide new services to customers, which increases the flexibility of LNG. These new services often allow LNG to be moved to other markets, and include (i) ship reloading – the transfer of LNG from the terminal into a vessel (including smaller ships); (ii) transshipment – the direct transfer of LNG from one vessel to another; (iii) bunkering – the loading of LNG on bunkering ships for supply to LNG-fueled ships; (iv) truck loading – the loading of LNG on tank trucks, which transport LNG in smaller quantities; and (v) cooling down and gassing up – making use of LNG to cool down and gas up ships. Rail loading (the loading of LNG onto railcars) is not yet offered in Europe but could be a future option.
The table below shows the services offered at the EU’s operational LNG terminals in 2013 (in addition to regasification).
 Source: CEER Status Review on monitoring access to EU LNG terminals in 2009-2013
From a security-of-supply perspective, more LNG import capacity in Europe is attractive compared to gas imports by pipeline. The EU Commission’s support for developing additional regasification capacity in Europe is likely to encourage investment in additional capacity. However, the continued growth of LNG in Europe will inevitably be influenced by trends in the global LNG market. If global LNG prices continue to remain low and to converge, it could result in increased LNG supply to Europe and consequently higher utilization rates in Europe’s existing terminals.