EU Energy Regulator Predicts Peak in LNG Demand in 2024

The European Union's energy regulator, ACER, predicts that the demand for liquefied natural gas (LNG) will reach its peak in 2024, following the crucial role LNG played during the recent energy crisis. This forecast is based on the regulator's analysis of energy market trends and the evolving dynamics in the LNG sector.

LNG imports have been instrumental in addressing supply shortages and price volatility in the European energy market during the crisis period. The EU became the world's largest importer of LNG, surpassing China, as it sought to replace Russian gas following conflict with Ukraine.

However, ACER anticipates that the demand for LNG will begin to decline after 2024 as the EU continues to diversify its energy sources and implement measures to enhance energy efficiency and transition towards renewable energy. The regulator's projections are based on the EU Commission's REPowerEU plan, which aims to reduce the EU's dependence on Russian fossil fuels.

Why this matters: The EU's shifting reliance on LNG has significant implications for global energy markets and geopolitics. As the bloc accelerates its transition to renewable energy sources, the future of LNG trade and infrastructure investments hangs in the balance.

According to ACER's report, from 2023 to 2026, the existing long-term contracts for LNG delivery in Europe will be insufficient to meet the total EU LNG demand. However, from 2027 to 2030, the impact of REPowerEU measures on EU gas demand reductions is expected to result in an over-contracted LNG position, with surplus volumes ranging from 30 billion cubic meters (bcm) in 2027 to 66 bcm in 2030.

The EU's gas infrastructure, including new projects commissioned last year, could reduce the dependence on Russian supply due to enhanced cooperation. ENTSOG, the EU's gas transmission system operators' association, stated that stocks could be filled without Russian pipeline gas. The association also provided an outlook for winter 2024/25, indicating that the EU's injection and withdrawal capacities combined with the supply flexibility of imports would be sufficient to cover demand and reach 59% storage fullness at the end of the next winter, even in the case of a full disruption of Russian pipeline supplies.

Despite the EU's progress in reducing its reliance on Russian gas, the bloc's dependence on Russian LNG supplies is not yet over. Spain, France, and Belgium still receive a significant portion of these imports due to long-term contracts signed before 2022. ACER recommends a gradual reduction of these Russian LNG supplies, starting with the spot market.

Key Takeaways

• EU's LNG demand to peak in 2024, then decline as it shifts to renewables.
• EU became world's largest LNG importer, replacing Russian gas.
• EU's LNG contracts may exceed demand from 2027-2030 due to REPowerEU plan.
• EU's gas infrastructure can cover demand without Russian pipeline gas.
• EU still relies on Russian LNG, but ACER recommends gradual reduction.