08 Oct 2015

Europe’s LNG Strategy in the Wider EU Gas Market

Gergely Molnar / Arno Behrens / Christian Egenhofer / Fabio Genoese

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Authors: Gergely Molnar, Arno Behrens, Christian Egenhofer and Fabio Genoese

Series: CEPS Policy Brief No. 333  No of pp: 8

In its Communication on an Energy Union published in February 2015, the European Commission committed itself to “explore the full potential of liquefied natural gas (LNG), including as a back-up in crisis situations when insufficient gas is coming into Europe through the existing pipeline system” and to address the potential of gas storage in Europe by developing a comprehensive LNG and storage strategy by the end of 2015 or early in 2016.

This is a comprehensible move in the current context. Geopolitical tensions between the EU and Russia explain the EU’s willingness to further diversify its supply sources of natural gas to reinforce its long-term energy security on the one hand, and to strengthen its ability to solve future crises on the other hand. Moreover, the current market dynamics could support diversification towards LNG. Increasing the flexibility of LNG trade, decreasing LNG prices and LNG charter rates and an apparent price convergence between the European and the Asia-Pacific LNG imports would all reinforce the economic viability of such a strategy.

This Policy Brief makes three main points:

•          For the LNG and gas storage strategy to work, it needs to be embedded in the realities of the natural gas market.

•          The key to a successful LNG strategy is to develop sufficient infrastructure.

•          The LNG strategy needs an innovation component.

Gergely Molnar is a former Research Assistant at CEPS; Arno Behrens is Research Fellow and Head of Energy in the Energy and Climate Change research unit at CEPS; Christian Egenhofer is Senior Fellow, Head of the Energy and Climate programme and Director of the Energy Climate House at CEPS; and Fabio Genoese is Research Fellow at CEPS. This text was originally prepared and submitted on 30 September 2015, in response to the European Commission’s consultation on an EU strategy for liquefied natural gas and gas markets.