King Coal: A Revived Threat To Europe’s Gas Market

The impact of the shale gas revolution in the US is rippling across international energy markets. Its direct effect on LNG is well known: the shale boom flooded the country with gas, effectively putting a stop to imports into the US and supporting a raft of new export schemes. These projects promise to introduce LNG linked to Henry Hub, the North American benchmark set in Louisiana, in competition to the more expensive oil-indexed product that has heretofore dominated global trade. What is less well known is how burgeoning gas supplies have pushed out more expensive fuels – coal, in particular – from the domestic energy mix. Much of this surplus coal is being exported to Europe, putting even further strain on gas-fired power plants, which can now barely compete with coal on cost. Pipeline gas buyers are still scraping the bottom of their minimum purchase obligations in order to curb losses on every molecule sold, while LNG imports into Europe are dropping – third quarter import volumes were just 11.4 MMt this year. Gas imports into Europe’s five biggest markets − the UK, Germany, Spain, France and Italy − reached a five-year low in August, and coal is taking up the slack. Download here