Europe’s approach to liquefied natural gas supply has been criticised by industry insiders who question government strategies of investing in new import capacity while shying away from long-term contracting agreements with LNG suppliers.

European countries have veered decisively towards LNG in 2022 as they strive to reduce their dependence on Russian pipeline gas imports following Russia’s invasion of Ukraine in February.

As the process to diversify supply sources expands, European Union member states have invested heavily in floating storage and regasification units to help deliver increased import capacity for LNG in a relatively short term.

By the end of this year, European imports of LNG are expected to increase to around 120 million tonnes, compared with just over 80 million tonnes in 2021.

Similar or larger volumes are forecast for next year and beyond, and FSRUs being deployed will account for a growing share of import points.

Speaking in Athens last week during the World LNG Summit & Awards, TotalEnergies Gas & Power’s vice president of LNG trading, Patrick Dugas, counted more than 20 FSRU projects lined up around Europe in the next two years, equating to “about 40 million tonnes of new demand”.

But the drive to add capacity has not been matched by supply arrangements to feed the FSRU terminals with long term LNG flows.

Deals announced last week by Germany with QatarEnergy and ConocoPhillips, for the import of 2 million tonnes per annum of LNG from Qatar starting in 2026 and lasting for 15 years, were notable for their rarity, sources said.

Speakers in Athens pointed to a visible reticence on the part of European buyers to lock in LTAs, which they claim is mainly explained due to the duration of the deals — between 15 and 30 years — potential conflicts with EU energy transition and decarbonisation targets.

Maria Rita Galli, chief executive of Greece’s gas grid operator Desfa, said there are concerns about locking in long-term agreements, as they are seen as “threats to decarbonisation”.

Galli’s comments were echoed by Christopher Goncalves, managing director at consultancy BRG Energy & Climate: “If buyers in the EU committed to LTAs, supply would increase… but there is a concern to enter into 15 to 25-year take-or-pay contracts.”

Europe became a premium price LNG market in 2022, as spot cargoes that historically headed to Asia were rerouted to the Mediterranean and North Sea.

Elio Ruggeri, senior vice president for LNG at Snam, said that European buyers outbidding Asian players has been “a burden on European industry”, adding: “This cannot be structural, it has to be transitional.”

Ruggeri called for long-term contracting as an efficient way to achieve lower prices that would, in turn, ease the energy cost for businesses and consumers.

“Affordability is reached only through abundance,” he said, citing LTAs as key to that effect.

In a panel discussion at the Athens event, senior vice president commercial of Adnoc LNG, Rashid Al Mazrouei, insisted that energy security comes through long term contracts, and added that it is the visibility of the deals that allows suppliers to invest in infrastructure.

“LNG is like a catholic marriage. There must be a degree of commitment for a bulk base load for 15 to 20 years,” he said.

He added that there can be clauses written in the contracts allowing buyers to move cargo elsewhere if no longer required, which could be considered in the context of Europe’s decarbonisation and energy security agenda.

One attendee in Athens told Upstream that, even while LNG has been making headlines throughout the year as spot prices surged, “you never hear about all those LTAs that move along at much lower prices”.

Europe finds itself in the unenviable position of simultaneously seeking to reduce its gas import prices, securing volume supplies for the years ahead and moving ahead with its decarbonisation goals, the source said, adding: “You either stay on the spot market but keep paying the top price, or you enter into a long-term deal and cut the price down. You can’t have both.”

The event heard that the risk that could be brewing in the coming years may be that of a supply gap emerging as more LNG import terminals enter operations in Europe without sufficient supply having been secured.

Mediterranean Gas chief executive Basilio Petkidis said in there is a possibility that Europe could “overshoot with infrastructure”.

“We may be struggling to find ways to use the infrastructure we’ve built,” he said.

Ruggeri said: “There is a risk that in a few years’ time we’ll have more import capacity than supply,” adding that Snam’s strategy was to acquire, rather than charter, the FSRUs so that the company had control over their activity and could “move them elsewhere” if the supply-demand outlook changed.

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