European Utilities Sit on Prize Assets Ahead of LNG Glut

 

Under-used LNG import terminals in Britain, Netherlands, Belgium, France and Spain, where the majority of import rights are held by utilities, are set to see more action, assuming gas prices can stay competitive.

 

Utilization at Rotterdam's GATE terminal is expected to be about 1 billion cubic metres (bcm) in 2015, a fraction of its 12 bcm annual LNG import capacity.

 

But European LNG imports are set to rise, with consultancy Energy Aspects forecasting a rise to around 91 million tonnes by 2017 from approximately 40 million this year.

 

That promises to bolster the value of import capacity rights which utilities and others hold to deliver LNG into Europe, turning around recent annual losses in the millions of euros due to lack of use.

 

"Capacity is becoming traded like a commodity now so as demand increases the price per import slot will rise," said one trader with capacity at a northwest Europe import terminal.

 

"The capacity holder will make money on selling the slot but also on selling the cargo of LNG into Europe's gas markets, boosting their sales volumes and market share."

 

One benefit of northwest Europe's excess import capacity, with its extensive pipeline networks and highly liquid trading hubs, is that it can better absorb additional gas supply than other regions.

 

Australia and the United States are just two of several producers gearing up for higher exports.

 

"European utilities will probably absorb most of the additional supply coming into Europe," said Javier Moret, head of LNG origination at German utility RWE.

 

"Utilities have the customers and commercial infrastructure to place the gas in Europe."

 

Signs are already emerging of increased appetite for capacity.

 

There has been interest in unsold capacity at Rotterdam's GATE terminal "for the first time in many years", according to Gate commercial manager Stefaan Adriaens.

 

Dong Energy, EconGas, E.On, Shell and Eneco are all existing holders of Gate capacity but around 0.9 billion cubic metres (bcm) remains available.

 

Adriaens said there had been a wide range of companies interested including trade houses, U.S. LNG exporters and European utilities.

 

"They've (utilities) been sitting on these import capacity assets for a long time, and particularly for the terminals which have open access, they have now got an asset which is worth money," said energy consultant David Ledesma.

 

U.S. producers are already jostling for position.

 

This year Houston-based Cheniere Energy (LNG) signed deals with French companies Engie and EDF for the delivery of cargoes into, among others, a new import terminal in Dunkirk, France.

 

"Utilities have been very unfortunate because they have been sitting on a lot of regasification capacity which was losing them a lot of money, but I believe that regasification capacity will become very valuable," a second trader said.