OREANDA-NEWS. About half of the 130mn t/yr of LNG capacity that is either being built or has been commissioned will be sold in European markets, according to German energy trading firm Uniper Global Commodities that is part of German utility Eon.

European LNG demand picked up last year for the first time since 2011 as the fall in gas prices made the fuel more competitive with coal. "The European markets are now looking an attractive proposition again, with their open access and potential for significant switching from coal to gas-fired generation," Uniper Global Commodities head of LNG Richard Baylis said at the LNG 18 conference in Perth, Australia.

The increase in LNG supplies into Europe last year was only the start of a longer term trend. "Over 50pc of this additional volume will find its way into Europe, either directly, or displacing other swing suppliers which are currently delivering into Asia," Baylis said.

Some European regasification terminals, particularly those providing access to the more liquid northwest European markets, are becoming congested, but the congestion will occur before the terminals reach full capacity, he said.

Much of the new supplies are coming from Australia to Asia-Pacific, while much of the new US supplies are to be shipped across the Atlantic to Europe.

Uniper's regasification capacity position at Isle of Grain in the UK and Gate, Netherlands have seen huge interest in access from Atlantic and Middle East producers, as well as Asian utilities concerned that they have overcontracted in the US and with LNG trading firms, Baylis said.

European demand has been aided by more competitive pricing against coal for power generation, as well as the small, but fast growing markets for ship bunkering and road transport. "Over the next few years, as the regasification terminals become increasingly congested, we can see the northwest Europe DES price being increasingly discounted to European hub price," Baylis said.

The northwest DES price is at a premium to the UK's National Balancing Point, which is an indicator for European wholesale gas prices. The premium is likely to be more than the long-run marginal cost until either LNG demand increases in other developing markets or new regasification capacity is built, he said.

Uniper expects European regasification terminals to experience utilisation rates above pre-2008 average level of 40-50pc, which is up from the 15pc in 2014. European regasification capacity is around 200bn m? (142mn t/yr). This implies demand of around 57mn-71mn t/yr, which compares with net demand of 37.5mn t in 2015, according to data in the 2016 World LNG Report from the International Gas Union.

"The regasification capacity will be at a premium, and in this part of the business cycle the owners and capacity holders can expect to cover more than fixed costs, recovering some of the losses in the last five years," Baylis said.