Warmer weather and lower utilization rates at Spanish gas-fired power plants led to an 8.7% year-on-year drop in European LNG imports over the second half of 2011, Deutsche Bank said in a report late Friday.
Europe imported 15% more LNG year on the year in H1 2011.
The falling LNG imports into Spain came about as the country shifted its Algerian gas imports from LNG to pipeline as the Medgas pipeline began commercial operations in April 2011.
Spanish LNG imports fell by 21% in H2 2011, compared with H2 2010.
In addition, a new law introduced February 2011 and in place till 2014, has increased subsidies on the consumption of domestically produced coal for power generation.
Strong competing demand from Japan -- arising from nuclear outages following the March 11 Fukushima quake -- and Argentina drew supply away from Europe as well, Deutsche Bank said.
Demand from Japan in H2 2011 was on average 900,000 mt/month higher than in the same period in 2010.
The bank said power generation from nuclear plants between June and November 2011 was down 19.4 GW year-on-year to 12.8 GW.
Argentina imported 2.9 million mt of LNG in 2011, up 142% from the previous year when it imported 1.2 million mt of the supercooled gas.
This was the result of a 10.6% increase in thermal power generation over the first 11 months of 2011, which was 67% fueled by gas-fired plants.
The bank noted that a significant proportion of gas to Argentina is sourced from Trinidad and Nigeria, reducing volumes available to Europe.
Local gas reserves in Argentina fell by half between 2000 and 2009, and production from mature fields have been on the decline since 2004, the bank added.
QATARI DOMINATION OF UK SUPPLY
The UK imported 40% more LNG year-on-year between January and November 2011, offsetting declines from other European countries such as Turkey, Portugal and Italy, whose imports dropped 24%, 10% and 4%, respectively, over the same period.
With the UK receiving the majority of its LNG cargoes from Qatar, it raised "a warning flag for medium-term security of supply," as Qatar increased committed contractual demand for its fixed output.
The proportion of non-Qatari imports into the UK dropped to around 10% in 2011 from 56% in 2009, according to Deutsche Bank.
Only two non-Qatari cargoes were received in H2 2011 -- one each from Yemen and Norway. The bank said it expected that available uncontracted volumes from Qatar would fall in 2013 and 2014 with the moratorium on further development of the North Field till 2014 and signing for term contracts with other buyers such as Malaysia and Taiwan.
"Among European LNG importers, the UK is uniquely vulnerable to this reduction as we estimate that only 24% of its LNG imports are guaranteed by contract, in comparison with other European importers," the bank said.
Within 2012-2015, availability of new uncontracted LNG scheduled to come online would be limited as well.
"Majority of the scheduled projects are located in the Pacific Basin, for which shipping costs to European destinations would present a much greater challenge than for Atlantic Basin projects," the bank said, adding that at least 75% of the planned production capacity at these new liquefaction plants was pre-contracted.
This left Angola and Algeria as more possible suppliers of new uncontracted LNG volumes for European buyers who were facing lower imports from Qatar in the medium term.
However, the Algeria LNG project at Skikda was a replacement train primarily serving long-term contracts which suffered force majeure due to an explosion in January 2004.
A second Algeria LNG project at Arzew was more likely to provide new uncontracted LNG volumes, especially as Algeria progressively "shifts its sales away from long-term contracts towards shorter contracts and spot market sales."
Ability to divert Angolan LNG cargoes could also be limited by contract, terms, the bank said.
Meanwhile, lower availability of uncontracted LNG would not be an immediate threat for importers in Europe and UK, as "European gas balance may very well continue to be oversupplied over 2012-2015 owing to marked contraction in demand in H2 2011."
