Commodities 2024: European FSRU buildout set to continue in 2024

Europe's increased appetite for LNG has seen the fuel move to center stage in the continent's energy mix as the rapid shift away from Russian pipeline gas is consolidated.

The EU, UK and Turkey had imported 170 Bcm in 2023 to mid-December, close to last year's total of 175 Bcm, with 47% of this year's intake from the US, data from S&P Global Commodity Insights showed.

The region's speedy deployment of floating storage and regasification unit (FSRU) infrastructure has been a key component in mitigating 2022's energy crisis, helping achieve a 60% rise in LNG import volumes last year.

"The competitive landscape in the FSRU market changed from being oversupplied to being tight during 2022," S&P Global analysts said in a Nov. 30 note.

"With Europe having secured up to 12 vessels in 2022, the FSRU availability is stretched thin," they said.

Nonetheless, Europe's buildout of floating LNG import infrastructure was expected to continue through 2024, led by Germany's ramp-up of its import capacity, which began in late 2022.

"The capacity on offer in Germany via terminals, and the total gas demand in the country, should lead to reasonable utilization of those terminals," Marcel Tijhuis, senior project manager at German LNG, a subsidiary of Gasunie, said at the World LNG Summit earlier in December.

The market for utilization of LNG import terminals in Northwest Europe was good but, moving forward, it would remain contingent on price levels, Tijhuis said.

Platts, part of S&P Global Commodity Insights, assessed the Northwest Europe LNG DES Marker at $10.57/MMBtu on Dec. 18 and the Mediterranean LNG DES Marker at $10.56/MMBtu.

Over-build risk

As in many infrastructure cycles, there is some risk of over-build as plans continue to proliferate, with some operators reporting insufficient demand for additional longer-term capacity.

Poland's Gaz-System said last month there was insufficient market demand to justify a planned second FSRU in the Bay of Gdansk.

Lithuania's terminal operator Klaipedos Nafta said in November it would postpone its capacity development project.

Still, new FSRUs will be deployed.

Earlier this year, Germany's economy ministry said it expected the country's LNG import capacity to reach 37 Bcm/year in 2024, doubling again by 2028.

Germany already has three operational FSRUs -- a privately operated vessel at Lubmin and two backed by the German state at Brunsbuttel and Wilhelmshaven -- and has plans for three more.

Those comprise state-supported FSRUs at Stade and a second at Wilhelmshaven together with a sixth vessel to be deployed at Mukran, which will also be home to the FSRU in service at Lubmin.

Despite a general preference for floating LNG import infrastructure over land-based terminals in Europe, the FSRUs at Brunsbuttel and Stade will be replaced by permanent terminals from 2026-27, with cost implications.

"Between 2022 and 2028, onshore engineering, procurement and construction costs are forecast to increase by 14%. Labor and equipment costs will be the main cost drivers during the forecast period," S&P Global analysts said.

Elsewhere, Greece's energy ministry said earlier this month that plans to transform the country into an "import gateway" and strategic LNG hub would hinge on robust import infrastructure.

Greece is set to see its first floating LNG import terminal, the 5.5 Bcm/year Alexandroupolis FSRU, operational in early 2024.

Plans for two further FSRUs in Greece are also underway, with Gastrade's second project, the 6 Bcm/year Thrace FSRU, set to launch at the end of 2024.

Motor Oil's 2-3 Bcm/year Dioryga Gas FSRU, located in Athens, was also expected to come online next year.

Italy has also sought to bolster its LNG import capacity in 2024 after the successful startup of its Piombino FSRU in May.

The country's second floating terminal, located in Ravenna, was on track to launch in early 2025, with the BW Singapore FSRU departing Egypt earlier this month, where it will sail to Dubai for dry docking in April 2024.

Outlook

The FSRU expansion in Europe comes as the global LNG market has remained under pressure in recent months amid strong inventories and weak demand.

"It does not seem like there is a bottom to prices. We are still seeing a large gap between buyers and sellers," one LNG trader said.

While there were opportunities in February, March and April, Northwest Europe and the Mediterranean were "well-covered and most players' storages are full," the trader said.

Even in the event of a significant cold spell, European gas storage could remain above 50% full, the trader said.

Similar fundamentals were seen in Asian and US markets, even if colder temperatures in China were seen driving heating demand.