US LNG will not cause European gas price drop: IEA economist

Washington (Platts)--10Apr2014/1228 pm EDT/1628 GMT


Despite the expected growth of US LNG exports, Europe has "no hope" of seeing gas prices near US levels due to transportation costs, Fatih Birol, the International Energy Agency's chief economist said Thursday.

LNG transportation costs, which include liquefaction, shipping and gasification costs, will add roughly $6/MMBtu and barely close the roughly $7/MMBtu differential between US and European gas prices, Birol said during a Center for Strategic and International Studies event.

Birol, who pointed out that gas shipping costs are roughly seven times higher than the cost of shipping crude oil, said he expects the US could be exporting about 70 Bcf annually within five years. He said this additional US LNG in the global market may give European importers more flexibility in negotiations, but said European prices would "not be even close" to US prices.

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"The US will always have the cost advantage for many years to come," Birol said.

In his presentation, Birol said growing US crude oil production was unlikely to reduce global oil prices and said he did not expect a dramatic reduction in fossil fuel consumption over the next two decades.

Despite government efforts to boost renewable energy, fossil fuels make up roughly 82% of the global energy-use mix, about the same percentage as 25 years ago. By 2035, Birol said he expects this share to only drop to 75%, despite the growth of solar and wind energy.

--Brian Scheid, brian.scheid@platts.com
--Edited by Derek Sands, derek.sands@platts.com

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