Prof. ST Hsieh
Director, US-China Energy Industry Forum
January 18, 2023
European Union is doing her best to import as much as, and as soon as possible, LNG for making up the Russian pipeline gases. After the Ukraine war broke out last February, G7 and EU imposed sanctions after sanctions against Russian energy export to Europe. Suddenly, Russian gases stopped flowing to Europe and it created unprecedented energy shortage in Europe. As of now, the much-feared crisis of insufficient heating over the continent has not appeared yet, thanks to a warmer than usual winter.
Europe’s future energy security lies in importing LNG, but the global LNG market will be very tight in the near future. Europe preferred short term gas contracts, before the Ukraine war, because flexibility in pricing. Now, Europeans have to take long-term LNG contracts because LNG is the sellers’ market. It is also better for the sake of energy security. The long timespan of LNG contracts is not fully compatible with Europe’ green energy transition schedule.
Unfortunately, Europe is on the “receiving end” of any LNG deal so it is paying a premium for LNG. The effort of developing a Europe Gas Benchmark Price is a first step to “avoid EU countries bidding against each another for supplies and potentially driving up prices further.” But it faces significant challenges. The next step for the Europeans is to assemble a Europe Gas Purchase Club with the goal of collective bargains with LNG exporters.
But the European move to assure energy security cost is an anti-market system against free trade. It may reduce the global energy market to the extent of cartels of exporters vs purchasing clubs. However, Europeans still may end up with a worse deal than Asians because of limited purchasing power. Further, Europe LNG market is already captured and dominated by the US LNG exporters. Europe will follow the US lead rather than the other way around. It means Europeans will be stuck with high price LNG for years to come.
Lack of data thwarts EU’s first attempt to launch LNG price assessment
By Kate Abnett
BRUSSELS, Jan 16 (Reuters) – European Union energy regulators have been unable to launch a planned liquefied natural gas (LNG) price assessment because they have not receive enough data from market participants.
The price assessment by the EU Agency for the Cooperation of Energy Regulators (ACER) is to be the first step in the EU’s plan to launch a new European benchmark piece for LNG, which Europe is switching to, to replace Russian pipeline gas.
Once established, market participants could use the new benchmark as the basis for LNG contracts, which have historically been pegged to the Dutch Title Transfer Facility (TTF) gas hub price that became highly volatile in the last year after Russia slashed pipeline gas deliveries to Europe.
But ACER was not able to publish its first daily LNG price assessment as planned on Friday, because only two of nine transactions reported to the regulator were eligible for inclusion. That was not enough to form a LNG price assessment, ACER said.
ACER again on Monday did not receive enough data to calculate an assessment, data on its website showed.
An ACER spokesperson told Reuters some of the received bids may have been for cargoes traded on a “free on board” basis, under long-term contracts, or for delivery years or months in future – none of which can count towards the daily spot price assessment.
“If there are no transactions concluded, there is nothing to report … ACER will monitor the data quality and communicate appropriately in case gaps are identified,” the spokesperson said.
The price assessment aims to form the basis for ACER to then launch a daily European LNG benchmark price by the end of March.
A European Commission spokesperson said the LNG price benchmark would be “built over time” in line with a regulation EU countries agreed in December.
“It will result by April in a new LNG benchmark to enhance the EU gas market’s transparency. We count on ACER to implement it and deliver on the legal requirements of the regulation,” the spokesperson said.
After a year of volatile gas prices driven by Russia slashing gas supplies to Europe, Brussels wants to make LNG pricing more transparent to avoid EU countries bidding against each another for supplies and potentially driving up prices further.
The EU says a new LNG benchmark price is needed since the Dutch TTF price is guided by gas pipeline supply, which Brussels says no longer represents a European market that includes more LNG.