LNG role in Europe growing
Liquefied natural gas (LNG) has taken an important position in the European energy market.
"We look to LNG for diversification and security of supply," said Hans-Peter Floren, a member of the board of management of the German company E.On Rurhgas with responsibility for gas supply.
Last year, E.On, one of Europe's biggest utilities, signed a deal with Rasgas, one of two LNG producers owned by the government of Qatar, for an initial four LNG cargoes to be delivered to the UK Isle of Grain terminal. That gas was delivered earlier this year, and more is due to follow.
"We're heavily invested in long-term contracts for regasification, ramping up through 2012 and adding up to 9 billion cubic metres of capacity," Mr Floren said.
The amount is equivalent to about 10 per cent of annual UK gas consumption.
E.On now has a "master spot agreement" in place with Rasgas, allowing it to purchase LNG cargoes as frequently as needed.
"We want to expand that business, so we are continuously in talks with LNG suppliers. Qatar is a priority," Mr Floren said.
While Europe has suffered from a shortage of gas-receiving facilities capable of accommodating the two largest classes of LNG tankers, which comprise the Qatari fleet, the north-west European market is now amply connected to the UK by undersea pipelines. That allows imports at the Isle of Grain to push gas through the pipeline network, ultimately supplying customers in continental Europe.
As a result, LNG from Qatar and North Africa is increasingly competing for European market share with pipeline gas from Russia. The increased availability of gas supplies from around the world is also helping Europe to address weaknesses in its renewable power supply by providing a back-up source of power generation for periods when the wind does not blow and the sun does not shine.
The LNG market has been tough for suppliers recently, due to a global gas glut that developed in 2009, but that is expected to change over time. In the meantime, the increasing availability of gas from different regions has given big European importers some leverage to renegotiate long-term contracts that have traditionally been linked to crude prices.