Ukraine Crisis May Spur Demand for European Floating LNG Re-Gas Terminals

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March 6, 2014

A floating LNG regasification unit (FSRU) pierside, rendering courtesy Hoegh LNG

March 6 (Bloomberg) — Liquefied natural gas suppliers are readying for increased demand from European countries seeking to diversify access to the fuel amid concern about Russian shipments after its military intervention in Ukraine.

Hoegh LNG Holdings Ltd. and Golar LNG Ltd. this week predicted gains from the dispute in Ukraine, the transit country for more than 15 percent of Europe’s gas use. Demand may boost the need for floating LNG import terminals such as the one Hoegh will deliver to Lithuania this year, Chief Executive Officer Sveinung Stoehle said.

“It will create an extra push in demand,” he said in an interview in Oslo yesterday. “It will put even more focus on energy independence, especially on gas. The only way you can be independent on gas is to import LNG.”

Concern about supply disruptions are showing across the gas market. Exports from Russia to Europe jumped to the highest level in three weeks as buyers built up stocks while U.K. gas prices on March 3 posted the biggest gain since 2011.

The events in Ukraine may reverse a “marked drop-down in LNG shipping into Europe,” Brian Tienzo, Chief Financial Officer at Golar LNG, said in an interview yesterday at a DNB ASA conference in Oslo. “With the Ukrainian events coming through, there might be a need for the Europeans to actually take in the stock.”

German Demand

Russia shipped 505 million cubic meters of gas to Europe, excluding Baltic countries, on March 4, the highest level since Feb. 7, according to data from CDU-TEK, a unit of the Russian Energy Ministry.

LNG exports from the U.S., which is building plants to ship the fuel after a boom in production, will boost global annual supply by about 40 million metric tons in 2017 from 250 million, Stoehle said. That’s creating demand for import terminals and tankers that will extend to European nations such as Ukraine, Belarus, Romania, Italy and Croatia, he said.

While he doesn’t see a major effect, Golar’s Tienzo said there could be long-term changes in the European gas market stemming from the crisis.

“Germany is one that you can look at,” he said. “They don’t have as many nuclear power generators that they can rely on, and they may feel that actually what they need to do is spread out their sources” of natural gas.

Cold War

If the Ukraine crisis escalates into a new “cold war,” more nations may consider increasing LNG imports, with European facilities operating at roughly a third of capacity at the moment, said Dragos Talvescu, a partner at Oslo-based consultant Sund Energy. In the meantime, Europe can’t afford to turn down cheaper Russian gas, while LNG sellers look for higher prices in Asia, he said.

“It’ll be difficult for LNG to compete with Russian gas in the period up to 2020,” he said by phone yesterday. “It’s hard to believe that Europe will opt out of Russian gas just because it’s Russian.”

The standoff between Russia and Ukraine, which escalated last weekend when Moscow invaded the Crimean peninsula, should lead U.S. authorities to ease restrictions on gas exports, industry groups and politicians including House Speaker John Boehner said this week.

While the first of six government-approved U.S. export projects won’t start output before next year, the Energy Department is considering at least 24 applications for new terminals.

More Tankers

The Ukrainian crisis “illustrates how the U.S. can almost get a new foreign-policy instrument by eventually being over- supplied with energy, both gas and oil,” said Jarand Rystad, managing partner at consulting firm Rystad Energy AS. Energy exports “can put more strength into some of the sanction policies,” he said in an interview in Oslo.

U.S. LNG exports may reach 60 million tons a year by 2020, boosting demand for tankers by as much as 25 percent from about 450 ships expected in two years, Hoegh’s Stoehle said. Hoegh operates six regasification vessels and LNG carriers, while Golar owns 16 vessels. The total LNG-carrier fleet counts more than 360 vessels, excluding regasification units, Golar said last month.

Hoegh will in August deliver the floating import terminal – – named Independence — to Lithuania, which is among nations seeking to reduce its reliance on Russian gas. The Ukrainian crisis may push others to follow, Stoehle said.

“It will start a political thought process,” he said. “It can create possibilities that we didn’t foresee just a short time ago.”

– Mikael Holter, Copyright 2014 Bloomberg.

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