What is the outlook for LNG pricing and trading in Europe?

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David Thomas, Head of LNG, Vitol
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Gastech News: What is the outlook for LNG pricing and trading in Europe?

David Thomas: I think it’s an exciting time and Europe is going to play a much more important role in LNG trading going forward. There’s a fairly consistent view that excess LNG will clear through Europe. Europe has got ample re-gas capacity both for less connected markets in the south but then into the hubs of northern Europe there’s plenty of capacity available and the opportunities are going to be tremendous for traders to divert and optimise cargo deliveries into Europe.

The only thing that’s been missing for the last five years is supply, but with the expansions of the projects coming from Australia and the expected build-up of export volumes from the U.S., that is going to change and we’re going to see a lot of LNG looking for a home. Higher prices in Europe means that there will be a lot of gas landing and a lot of competition with traditional, domestic and long distance pipeline gas.

Gastech News: What are the key factors to maximize European gas and LNG trading efficiency?

David Thomas: I think everything is in place at the moment for a very dynamic period for LNG trading and optimisation into Europe, competing with traditional gas sources in the main markets. If, as we predict, prices fall, we will see demand pick up and there will be opportunities to bring more LNG in from the new projects and expansions; that is, these that have already taken financial investment decisions and are not deferrable in the short term. The market is going to become much more fungible. There’s plenty of shipping - two years ago we were very short of LNG ships just for a single spot voyage. Now, there is an adequate fleet of ships out there. There is a vessel available for most spot trades and there’s a vessel available for longer term business also. Traditional trade flows will change; six-seven years ago, gas was going the other way across the Atlantic, now we’re going to see gas coming into Europe. The Panama Canal will shorten sailing times form the Gulf of Mexico to traditional markets in Asia but that’s not necessarily where the gas will go.  I am certain there will be opportunities to seed new markets. So as the business evolves Europe sits in the centre of what’s going to become a very dynamic business.

Gastech News: What is the real potential of establishing trading hubs in Eastern Europe?

David Thomas: I think Eastern Europe is going to be more affected by a netback of gas flows rather than necessarily direct impact from LNG. Probably two exceptions to that are the two LNG terminals in the Baltic, the one in Poland and the one in Lithuania, where they can directly compete and bring LNG into the market. Elsewhere in Europe the gas grid is built up from the corridors from Russia, and without back-flowing gas it’s going to be very difficult for LNG to directly impact those markets, but indirectly, the surplus of gas that’s available to go into them will ultimately stimulate demand.

Gastech News: What attractive opportunities do you see in Europe in the next three years?

David Thomas: In the next three years, I think the value of re-gas capacity will change: there was a lot of capacity built through the last decade. Mostly, it’s been under-utilised, there’s been no firm supply against it. I think, as we’ve already discussed, with the surplus of volumes coming out of the U.S., there will be ample opportunities to see a return or at least realize some value from that investment, and create other opportunities to optimize.

What attractive opportunities do you see in Europe in the short-term? Share your views below.

David Thomas, Head of LNG at Vitol spoke at the EAGC 2015. The theme for the 2016 EAGC Conference in The Hague in November 2016 is “Beyond COP-21: Rethinking European Gas within the Global Energy Mix”.

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