![Global LNG balance in a low Asian demand scenario [source: OIES]](http://gastopower.co.uk/media/k2/items/cache/4c37b73d5a4828ce04734b26bb0cd7d6_S.jpg)
A glut of LNG supplies in the coming years as new liquefaction projects come online at global level might lead to increased coal-to-gas switching in European markets, a recent paper by the Oxford Institute for Energy Studies (OIES) suggested.
This eventuality would however only materialise in a scenario of low Asian LNG demand, OIES' chairman, natural gas research programme Howard Rogers said.
Europe’s position as the ‘market of last resort’ for LNG “is linked to the issue of competition between Russian pipeline gas and LNG in Europe” he said.
A ‘low’ Asian LNG demand scenario would leave significant volumes of LNG from existing and newly completed LNG export facilities competing with Russian pipeline gas in Europe, he argued.
“It is assumed that Russia would ‘defend’ a minimum of 150 bcma of pipeline gas exports to the European region” corresponding to 85% of aggregate annual contract quantities. “This was not an issue in 2016 when colder weather and coal to gas switching in the power sector led to higher demand that only Russia and Algeria were able to meet” he added.
Coal-to-gas switching among clearing mechanisms
In this scenario, low demand for LNG in Asia would to a ‘surplus’ of LNG supply from 2018 to 2021, with markets clearing the glut of LNG through three main mechanisms: coal to gas switching in Europe, depending on the prevailing level of coal and CO2 prices; low-price ‘induced’ LNG demand in Asia from industrial customers which can access LNG cargoes at spot prices and US LNG export curtailment when the spread between Henry Hub and European Hub Prices and Asian spot LNG prices) is less than the variable cost of shipping and regasification for players with the highest costs, Rogers explained.
Nevertheless, in a 'high Asia demand' scenario, partially supported by coal-to-gas switching in China and India, higher power demand growth and a commitment to phase out nuclear in Taiwan and a faster decline rates of domestic gas production in Pakistan, Thailand, Bangladesh, Malaysia, Indonesia and Vietnam there would be less LNG available to Europe which would then likely experience more sustained levels of pipeline imports of Russian gas, he said.
Moreover, a further slippage in implementation of LNG liquefaction project might mean the expected glut of supply would not materialise in the near future, he warned.