Tuesday, July 14, 2015

Active rigs:

	7/14/2015	07/14/2014	07/14/2013	07/14/2012	07/14/2011
Active Rigs	73	193	186	215	178

RBN Energy: Why Europe Needs U.S.-Sourced Natural Gas.

European natural gas consumers would welcome the addition of low-cost liquefied natural gas (LNG) from the U.S. to their gas-supply mix. For one thing, they want to reduce their reliance on Russia and other potentially sketchy sources of pipeline gas.

For another, they want to weaken the link between oil and gas pricing—something U.S.-sourced LNG would help them do. What would it take for the U.S. to become one of Europe’s primary gas suppliers, and what would that mean for U.S. gas producers and LNG exporters? Today we continue our examination of the international LNG market with a look at what’s driving European curiosity about U.S. LNG.

The U.S. and European natural gas markets are about as similar as U.S. football and European football (known to those of us on the western side of the Atlantic as soccer). Within the Lower 48, U.S. gas pipelines are highly interconnected, gas pricing and trading is hub-based—and, it’s worth noting, virtually all of the gas consumed in the U.S. is sourced domestically or from Canada, a highly reliable and politically stable trading partner. Europe, on the other hand, depends on far-away sources for much of its gas (about 30% is piped in from Vladimir Putin’s Russia), and it developed its first gas trading hub less than 20 years ago (the British National Balancing Point, or NBP, in 1996). 

Even now, spot gas trading sets the price for little more than half of all the natural gas Europeans consume. The price for almost all the rest (40% or so, by most estimates, including most Russian gas) is based on long-term contracts indexed to oil prices. 

There are a lot of historical reasons for this, including the facts that the UK and Norway (two of Europe’s three primary sources of native gas—Holland is the third) for years were not connected to the rest of Europe by gas pipelines. Also, for centuries before the formation of the European Union (EU) in 1993, each European country was pretty much a market of its own. Things have been changing, though. New pipelines have been built (and more are planned), new trading hubs have been started up (including the Title Transfer Facility in 2003, the Central European Gas Hub in 2005, and the Net Connect Germany and Gaspool hubs in 2009), and more than 20 LNG import terminals have been developed throughout Europe (green dots in Figure 1) to receive liquefied gas from Qatar, Algeria, Nigeria and other suppliers. More import terminals are under construction.