Europe is set to be the key destination for LNG gas supplies from the U.S. as prices have fallen in Asia, the world’s biggest consumer of the fuel, according to global energy consultancy Wood Mackenzie. The U.S. is forecast to ship about 55% of its total LNG production, or 32 mmta, to Europe by 2020, according to Alex Munton, Houston-based principal analyst for Americas LNG at Wood Mackenzie.
That’s because Europe is so close, has ample import capacity and liquid markets, and now has prices nearer to those in Asia. The U.S. will ship its first tanker of LNG from the Sabine Pass plant in Louisiana this quarter, marking the start of a wave of export projects resulting from the shale gas boom. Atlantic basin producers are focusing on Europe as the premium that buyers such as Japan used to pay has mostly disappeared amid waning demand and new supply from Australia and Papua New Guinea.
“A significant amount of LNG will end up in Europe,” Munton said. “The spread between European and Asian prices has disappeared, and based on the proximity to the Gulf Coast, Europe will become a more attractive market.”
LNG flows from nations surrounding the Atlantic Ocean to areas around the Pacific fell 16% to 82 million tons in 2015, Wood Mackenzie said, while European net imports of LNG increased 14% to 37 million tons. For Europe, U.S. gas will diversify its sources as the region is dependent on Russia for a third of its gas, while domestic production is declining.