The Americans are coming
http://petroleum-economist.com/articles/midstream-downstream/lng/2016/the-americans-are-coming2 November 2016
The impact of US shale gas production is starting to be felt in Europe, with Turkey receiving its first cargo of American liquefied natural gas, and Ineos its inaugural cargo of ethane. Two earlier US LNG cargoes have also made their way across the Atlantic and many more-both of ethane and LNG-will follow in the coming years. They should cap European gas prices and force established exporters, Norway and Russia, to cheapen the price of their gas, even as domestic European production shrinks.
Over recent years most of Europe's LNG has arrived from Qatar, Algeria or Nigeria, and demand is now edging up, helped by new Baltic regasification terminals. The US LNG deliveries should begin in earnest this winter. Provided Henry Hub prices don't rise much further-a recent rally took them above $3 per million British thermal units for the first time since 2014-the American cargoes should compete directly with piped-gas supply.
At present Henry Hub prices-about $3.30/m Btu-National Balancing Point, or NBP, and Dutch Title Transfer Facility, or TTF, prices in Europe will have to stay above about $4.30/m Btu to make the trade work, according to a report by Thomson-Reuters. But recent attractive margins on the trans-Atlantic route may have been locked in on the forward market, helped by a UK winter premium thanks to problems at the Rough storage site, which accounts for 70% of UK gas-storage capacity.
LNG spot sellers will have to compete with the Russians and Norwegians, which are both on track to achieve record exports to Europe in 2016. After a number of years of contraction, Europe's gas market is at least growing again and domestic output is down-so there should be room for extra LNG. Demand is growing because coal prices are rising, making the switch to gas more attractive. This switching might provide for 70bn cubic metres a year more consumption, if the spark spread remains positive, according to some estimates. This is more likely if continental environmental regulations begin to penalise coal for its higher emissions, as is the case in the UK....
Ethane shipments should be more regular: its price depends more on lightened petroleum products than natural gas benchmarks. In any case, the companies involved have committed to a long-term deal. By contrast, LNG sales are largely expected to be on a spot basis, and in competition with alternative export markets and the US domestic market.
