LNG in Europe 2021: Current Trends, The European LNG Landscape and Country Focus | Page 2

Looking Back and Ahead
In 2020 , all of Europe ’ s LNG importing countries saw a fall in LNG imports compared to 2019 with the exception of Turkey , Poland , Sweden ( small-scale ) and Greece . From smallest to largest ( in terms of reduction ) Malta , the UK , Spain , the Netherlands , Italy , Belgium and France all witnessed a reduction in LNG imports in 2020 . However , 2020 was an exceptional year and LNG imports into Europe are expected to grow in the short and medium term . Europe ’ s need to import gas is driven by the continued and rapid decline in European domestic production , combined with a near term 3 % year-on-year increase in gas demand . LNG is expected to be the fastest growing source of natural gas in Europe to meet this supply-demand gap . By 2025 , Europe is projected to account for nearly 15 % of global LNG demand .
The role of LNG in Europe in the longer-term ( i . e . to 2040 ) will also be influenced by the course of the energy transition both in Europe and worldwide ( in addition to the supply-demand gap ). The outlook for gas demand in Europe by 2040 is still somewhat uncertain . Shell anticipates a 1 % drop in European gas demand in 2040 against present levels , and the International Energy Association has consistently downgraded its European gas demand outlook over the past few years . LNG ’ s ability to function as a secure and reliable partner to renewable energy supplies over the long term will be key to its place in Europe ’ s energy mix in 2040 and beyond .
Greener LNG
On 24 June 2021 , the European Parliament approved a landmark ‘ Climate Law ’ which imposes legally binding commitments on the 27 EU Member States to reduce net EU emissions by 55 % by 2030 from 1990 levels (“ Fit for 55 ”), and to achieve net-zero greenhouse gas emissions by 2050 . The EC published the “ Fit for 55 ” package of legislation on 14 July 2021 . As part of this new ‘ European Green Deal ’, the EU has also published its Methane Strategy , which aims to reduce methane emissions in the EU , both in the energy sector but also from agriculture and waste . Operators in the energy sector – including in the LNG space – can expect increased scrutiny of their methane emissions going forwards .
Gas and LNG have a key role to play in a decarbonising world . Natural Gas ( including regasified LNG ) and LNG have a much smaller carbon footprint than heavier fossil fuels . Across Europe , LNG is already proving its potential to replace coal and oil in power-generation , and heavy fuel oil and diesel in freight transport and shipping . LNG is also seen as a natural partner to renewable energy .
However , the strong ESG movement amongst civil society , investors and lenders in Europe has questioned whether LNG is “ green-enough ” to fuel the energy transition . This comes at a time in which the roll-out of renewable energy is increasing at great pace . In response to this challenge , the LNG industry has demonstrated the dynamism typical of the sector through a number of creative measures . One of them is the rise of a new product , “ Green LNG ” – LNG cargoes where associated GHG emissions are offset through the purchase and cancellation of carbon certificates . These can either be in respect of Scope 1 emissions : the emissions directly emitted from the market participant ’ s own assets , Scope 2 emissions : the indirect emissions associated with the market participant ’ s own assets , and Scope 3 emissions : externally owned indirect emissions . A number of key players in the LNG industry – majors such as Shell , Total and BP , as well as trader Vitol – are now selling Green LNG cargos on this basis , with varying levels of offsets . This is primarily in the LNG spot market , although it appears that there is expansion into medium term contracts .
US exporters have also been keen to stress their green credentials , with Next Decade , Sempra and Freeport among a number of exporters offering Green LNG or integrating carbon capture and storage into their projects in a bid to differentiate their cargoes from the competition .
The cost of offsetting the GHG emissions of an LNG cargo will vary on the extent of the offset and the type of certificate purchased , with investment in reforestation projects being the most expensive form of offset . GIIGNL estimates a cost of USD 2.5 million for an average cargo size emitting 250,000 tCO2e , equivalent to USD 0.60 / MMBtu – although we have seen prices as low as USD 0.39 / MMBtu quoted by one LNG-seller . With relatively high LNG prices at the time of writing , the additional premium risks making LNG less competitive as a fuel . If prices fall back to those seen in 2019 / 2020 , then the absolute cost of a Green LNG cargo may be comparatively more economical to other fuels – but the “ green premium ” will be a higher component cost proportionate to the overall price of the cargo .
Most Green LNG cargoes have been delivered into Asia so far . However , in March 2021 Gazprom delivered its , and Europe ’ s , first carbon-neutral cargo at the Dragon LNG terminal in the UK . The offset is in respect of “ nature-based carbon credits ” and for the full Scope 1 , 2 and 3 emissions associated with the cargo . With only a handful of Green LNG cargoes delivered to date , the allocation of the cost of purchasing carbon certificates as between producers , shippers and purchasers is still unclear . We expect that buyers may be willing to tolerate paying for certificates as part of the cargo price if these costs can be passed-through to end-consumers , although this will depend on the regulatory regime in the relevant jurisdiction . bracewell . com