More than ten years ago, I argued that Europe could become a market maker for LNG cargoes.
The ingredients were already there.
Europe had liquid and relatively transparent gas trading hubs. It had deep geological natural-gas storage. It had large, sophisticated gas markets with considerable fuel-switching capability. And it had a remarkable concentration of LNG terminals, not only along the northwestern coast but also throughout the Mediterranean, giving LNG access to almost every meaningful part of the European gas system.
It was an unusually powerful combination.
As long as Russian pipeline gas provided the backbone of European supply, LNG remained, for most countries, a useful addition rather than a structural necessity. Spain and Portugal were the obvious exceptions, having built their gas systems around LNG long before much of the rest of Europe had any serious need for it.
Then the backbone disappeared.
With Russian gas no longer serving as Europe’s principal gas supplier, LNG became much more important. It moved from being a useful supplement towards something considerably closer to baseload supply for many markets.
And yet the story did not develop quite as expected.
Europe has reduced its gas consumption. Some countries have switched back to other fuels. Industrial activity has weakened. The economic contraction of large parts of the continent has simply removed a significant amount of energy demand.
That does not make Europe’s LNG position irrelevant.
Quite the opposite.
Europe remains an extremely attractive destination for LNG sellers and portfolio players precisely because of the flexibility embedded in its system.
You can bring excess cargoes into Europe and put them into a deep, interconnected market.
You can redirect cargoes originally intended for Europe towards another part of the world when prices elsewhere become more attractive.
And if that happens, European storage can cover the resulting shortfall.
That flexibility has a value.
Europe can effectively function as a large balancing mechanism for the global LNG market. Cargoes do not necessarily have to be consumed where they were originally contracted. They can be moved, redirected, stored or replaced according to where the economics make the most sense.
That is precisely the sort of infrastructure that can turn a geographical market into a trading position.
And yet, more than ten years after I first suggested the opportunity, Europe has largely left the value lying on the table.
Why?
Because Europe has managed to combine arrogance with wilful blindness and, at times, an almost impressive degree of institutional stupidity.
The infrastructure was there.
The market liquidity was there.
The storage was there.
The terminals were there.
The demand flexibility was there.
The geographical position was there.
What was missing was the willingness to recognise what all of those things together actually represented.
There is a peculiar kind of economic failure in possessing an extremely valuable asset and refusing to understand that it is an asset.
Europe could have positioned itself as one of the world’s great LNG balancing and trading centres. Instead, much of the discussion remained trapped in the simplistic question of whether LNG should be consumed in Europe.
That misses the point entirely.
You do not need to burn every molecule to profit from controlling the flow.
Sometimes the valuable position is the ability to decide where the molecule goes next.
Europe has that position.
It still has it.
And because almost nobody else has exactly the same combination of storage, liquidity, infrastructure, interconnection and market depth, the opportunity remains unusually defensible.
The tragedy is not that somebody else took the opportunity away.
The tragedy is that Europe has spent more than a decade leaving it unused.
And in a market where somebody else is always prepared to make the money you refuse to make, that is not virtue.
It is simply expensive stupidity.
https://globallnghub.com/european-lng-regains-ground-in-competition-for-flexible-cargoes/