Sanctions drowned in gas: European LNG market in symbiosis with Russia and the US

By Marek Grzybwoski

The European Union remains the world’s largest LNG importer. In the first half of 2024, the EU imported 45.4 million tons of LNG. Although LNG imports dropped by 12.2% year-on-year, the demand side still accounts for 22% of the global LNG market. For comparison, in the January-December 2023 period, LNG imports from European Union countries increased by 1.9% year-on-year to 102 million tons, to China by 11.4% year-on-year to 71.6 million tons, to Japan by 9.2% year-on-year to 66.9 million tons, to South Korea by 3.5% year-on-year to 45.5 million tons – says Banchero Costa Research in its latest report.

 

By pumping Russian LNG and crude oil in terminals in Belgium, Spain and France, the EU pumps over USD 1 billion into the Russian economy every month. – the latest CREA report states.

In September 2024, Russia’s monthly export revenue from fossil fuels fell by 2% to EUR 618 million per day. This is the sixth consecutive month of decline. Despite this, Russia’s LNG export revenue increased by 4% month-on-month to EUR 42 million per day. Russia saw a small 1% increase in revenue from pipeline gas month-on-month to EUR 78 million per day.

Global LNG trade by sea continued to grow last year, also helped by events in Ukraine that forced Europe to diversify its gas supplies and replace imports from Russian pipelines. However, there was some slowdown in LNG trade compared to previous years. Global LNG supplies increased by 1.7% year-on-year to 409.9 million tonnes in the first 12 months of 2023, based on LSEG ship tracking data.

The changes in LNG demand in 2023 and 2024 occurred after a dynamic increase in LNG supply volumes in 2022 by 4.7% y/y and a 7.3% y/y increase in 2021. In the January-June 2024 period, the positive trend continued, with deliveries by LNG carriers increasing to 206.0 million tonnes and being 1.3% higher y/y, when 203.3 million tonnes were reached in H1 2023.

The supply of LNG for transport by ships increased. As a result, 1.7% more liquefied gas was transported by LNG carriers between export and import terminals in 12 months of 2023 than a year ago. LNG terminals pumped around 409.9 million tonnes from ships to onshore facilities last year.

LNG Terminal in Poland
For comparison, in 2023, the terminal in Świnoujście received 62 LNG tankers, from which approximately 4.66 million tons of liquefied gas were received, which is approximately 6.43 billion m3. This was approximately 0.26 million tons of LNG more, or 0.36 billion m3, compared to 2022 – according to data from PGNiG (ORLEN Group). The last cargo reached the terminal on December 29 based on a long-term agreement with the Qatari partner – QuatarEnergyLNG (formerly Qatargas). The gas carrier “Al Sahla” delivered approximately 90 thousand tons of LNG.

In October 2024, the LNG Terminal in Świnoujście received an LNG tanker with the 49th delivery of liquefied natural gas. Since the beginning of the gas terminal’s operation, 317 deliveries have been received. In the first 3 quarters of 2024, the terminal in Świnoujście imported 44 deliveries with a total volume of approximately 3.18 million tons of LNG (approximately 4.39 billion m3). In the third quarter of 2024 alone, ORLEN (formerly PGNiG) received 17 LNG shipments from the terminal in Świnoujście, with a total volume of approximately 1.20 million tons of LNG (approximately 1.66 billion m3).

Since the Lech Kaczyński terminal in Świnoujście began operating, 317 loads of liquefied natural gas have been received there. Over the 5 years of operation of the terminal in Świnoujście, approximately 20 million tons of liquefied gas ordered by PGNiG have been received, which after regasification corresponds to approximately 27 billion m3 of natural gas. Most of the cargo came from Qatar and the USA. A dozen or so deliveries were from Norway. Poland also imports gas from Nigeria and Trinidad and Tobago. In October 2024, the gas carrier Al Sahla, sailing under the flag of the Marshall Islands, delivered approximately 90 thousand tons of LNG from Qatar.

In the coming years – as further contracts with American LNG exporters are implemented – the number of deliveries from the US to Poland will increase significantly. PGNiG – under agreements with GAZ-SYSTEM – currently reserves the full capacity of the terminal, i.e. approximately 5 billion cubic meters of regasification capacity per year. As it expands, it will have a processing capacity of 6.2 billion cubic meters, and from 2024 – 8.3 billion cubic meters – informs PGNiG.

Russian gas still warms the EU
In Q3 2021, Russia was the largest supplier of natural gas in gaseous form to the EU with a share of 48%. In Q3 2022, it remained on the podium with a share of 16.7%. Russian suppliers were overtaken by Norway (45.1%) and Great Britain (19.0%). Between Q3 2022 and 2023, Russia’s share fell by 0.7%. In the same period, the shares of Norway (by 3.5%) and Algeria (by 9.3%) increased. The share of supplies from Great Britain’s gas terminals decreased by 8.5% – informs EUROSTAT.

In 2023, the EU imported 18 billion m3 of Russian LNG. This is the result of long-term supply agreements signed before 2022. At least 1 bcm (but probably more) of this Russian LNG is re-exported to Asian markets via LNG transshipments in marine terminals, ACER experts assume – EU Agency for the Cooperation of Energy Regulators.

ACER assumes wishfully that there is a possibility of a decrease in gas demand REPowerEU (if it materializes by 2030) could change the EU’s dependence on the LNG spot market. Then it could “change the status of 49 bcm of “under-contracted” LNG demand in 2023 to imports of “over-contracted” LNG at the level of 30-40 bcm in 2027-2030″.

Under-contracted demand means insufficient long-term contractual commitments, increasing buyers’ dependence on the more volatile spot market. Over-contracted means that long-term contracts exceed demand. However, the excess long-term liabilities should not be a burden thanks to the flexibility of free-on-board (FOB) contracts, which allow the excess LNG to be sold on the spot market or redirected elsewhere, explains European agency ACER.

Gas Union with FSRU
However, the EU is dependent on gas, and this is evident from the dynamically growing number of regasification installations. Systems based on gas carriers could be built quickly, and these systems began to grow like mushrooms after rain. Only in Poland is the FSRU project on the Gulf of Gdańsk at a snail’s pace and today the floating terminal is twice as expensive as it was over 10 years ago.

About 75% of the new regasification capacity launched in EU seaports from 2022 are floating storage and regasification terminals (FSRU). Such terminals have recently been installed by Germany, and in southern Europe by Croatians and Greeks, significantly increasing energy security. And this is happening in countries that have much more developed energy based on solar and wind installations than Poland.

Including FSRU in the gas import system allows for the potential reuse or relocation of floating infrastructure in the event of a significant decrease in its use. Thus, the gas carrier can be used to implement long-term gas import contracts. And global LNG supply capacity to the market is growing rapidly as a result of intensive investment in marine export terminals. It is predicted that by 2030, supply could increase by more than 200 million tons, which is about 50% of current annual LNG trade volumes. The United States is still actively focusing on building export capacity. The high dynamics of investment in marine LNG terminals will continue unless the decision to suspend the granting of new LNG export permits acts as a brake.