Portugese LNG cargo no signal of US impact
It was the question that the European gas industry was asking for months -- when would the first LNG from the US land in Europe?
In the end it only took two months since the first exports departed from Cheniere's Sabine Pass terminal for the US LNG to hit European shores, with the Creole Spirit landing at Portugal's Sines terminal late April 26.
The receiving party of the cargo is understood to be Portugal's gas and power grid operator Redes Energeticas Nacionais (REN), owner of Sines.
But while much of the attention has been on when US LNG would come to Europe, the bigger question really is how much US LNG will come.
The significance of Portugal being the first European country to import LNG from the US should not be overplayed.
It is only a small market -- with just 4.7 Bcm of consumption in 2015 -- and it is entirely dependent on imports, so the delivery of US LNG into Portugal should not be seen as a sign that US LNG will take hold in the wider European market.
In addition, the biggest suppliers to Europe -- Russia and Norway -- do not supply the Portuguese market with their pipeline gas so they are likely to be non-plussed about the first US LNG landing in Portugal.
This suggests that the much-anticipated European gas market share war will not be waged on the Iberian peninsula.
"Iberia is an island market with no liquid hub, so it's semi-historic," a London-based LNG trader said April 27 of the first cargo arriving in Portugal.
"I think it would be more of a landmark if it went to Northwest Europe, signaling a link between the hubs," the trader said.
For Algeria, and a lesser extent Nigeria, it is a different matter.
Portuguese gas imports come mainly from a few long-term contracts held by the Galp group with Algeria (through Spain) and Nigeria (imported as LNG).
Pipeline gas from Algeria via Spain makes up around 70% of total imports, according to data from the International Energy Agency. This suggests imports via pipeline of around 3.3 Bcm.
For Algeria, that is a significant market -- its total exports by pipeline were estimated at around 27 Bcm in 2015, so Portugal can account for as much as 12% of Algeria's gas exports by pipeline.
And the situation for Algeria could get even worse if US LNG heads for Spain and Italy, its two key export markets.
Algeria's response to the threat of US LNG imports into southwest Europe seems to have been strong.
So far this year Algerian gas flows to Italy have averaged 38.4 million cu m/d -- more than double the 2015 average of 19 million cu m/d and the 2014 average of 18 million cu m/d, according to data from Platts analytics unit Eclipse Energy.
And since the start of April, exports to Italy have averaged more than 60 million cu m/d, Eclipse data shows.
For Spain, Algerian pipeline exports in Q1 averaged 37 million cu m/d, up slightly on the same period of 2015, but again in April have soared to an average of 44 million cu m/d.
Certainly any US LNG exports to Spain would be seen as a direct threat to Algeria's market share and you wouldn't bet against it given Spain's significant underused LNG import capacity.
Elsewhere on the continent, it looks like Russia and Norway are also headed down the route of defending market share at the expense of price -- mirroring the strategy still being played out by Saudi Arabia in the oil markets.
In the first quarter supplies from Russia and Norway to Western Europe have been running at record highs despite low prices.
Total Russian gas exports to Europe via the Nord Stream, Yamal, and Brotherhood pipelines in Q1 were 28.33 Bcm, 53% higher in comparison with the 18.56 Bcm from Q1 2015.http://www.platts.com/news-feature/2016/naturalgas/global-gas/index