A substantial share of information about the European regasification capacity remains a grey area.
In the proposed digital framework users would have the right tool designed to facilitate the entire process of acquiring information in a more versatile way in terms of having a good grasp on the tariff tables and fees for more than one Terminal.
Amid the prolific and expanding LNG industry worldwide, the massive influx of Liquefied Natural gas in the Old Continent makes Europe the third largest region for LNG import, reaching almost 80mtpa out of 356mtpa LNG global trade volume.(preceded by Asia-Pacific and Asia regions respectively).
Although not to be compared with Asia-Pacific region, the overall regasification capacity in Europe amounts 179mtpa with currently 37 operating terminals, and a good deal of more to be built this year(EPC)or in the planning stage(FEED, FID). By giving consideration to Europe’s largest LNG receipts from Spain (45 MTPA) and UK (38MTPA) in addition to the ongoing construction of new import facilities, we may be of opinion that stringent transparency requirements need to be introduced before the Terminals Operators in the interest of more competitive, accessible and fair market environment, if not, then roughly 37% of total EU send-out capacity will continue to be beyond the reach information-wise.
Not much has been done recently to tackle the information opacity and complexity, which according to the Council of European Energy Regulators ‘are evident to be a potential barrier against new LNG Imports’. CEER/GIE is the main driver behind bringing this up before the National Regulatory Agencies (NRAs) and LNG System Operators (LSOs), represented by the GLE. Therefore, there is an existing GLE Transparency template (GIE/GLE), implemented on a voluntary basis by the LNG system operators, which in a way deem to be a temporary remedy of questionable benefit for the current situation. Furthermore, CEER also expressed its opinion on broadening the catalogue of the Terminal services, which is to say more non-bundled services to be offered in order to increase flexibility.
However, this concerns more the generic Terminal characteristics rather than the commercial information, which is more vital for taking the informed decisions (i.e., ‘regasification costs’ etc.)That being said, a substantial piece of the European regasification capacity remains to be a gray area. (e.g., UK receiving terminals) Problem gets compounded by the absence of an Organization for facilitating the cooperation between LNG Terminal Operators (such as ENTSOG for pipeline gas infrastructure).
In a nutshell, there seem to be three peculiarities, which may raise caveats to the European LNG trade:
- Lack of genuine level-playing field - A handful of Import Terminals (6 LNG Terminals)are under an exemption regime, which in the matter of data accessibility would mean that all the commercial information regarding Tariff and Fee structure is not disclosed, but strictly confidential.(e.g., Basic services such as Unloading, Storage, Regasification).
- Lack of service standardization – Presently, there is a substantial tariff variation between regulated terminals. (For some terminals gas-in-kind will be due approx. 1.6% of the volume of LNG to cover consumption and losses of the regasification chain.) There is only one type of bundled service offered by all EU import terminals (regulated and exempted), which constitutes a terminal’s three essential activities: ‘ship unloading + LNG storage + regasification (send out)’. By convention, LNG Tariffs are applied to 3 concepts : • Unloading LNG (fix & variable terms) • LNG storage (only variable term). Penalties for having “too much” LNG stored (overrun). • Send out /regasification capacity (capacity & commodity charges)
- Poor-quality information – all in all, the information published is not illuminating, on the contrary, it is rather incomplete with questionable value as concerns the usage of the LNG receiving Terminals. In addition, there is a limited understandability if we consider the absence of a word-for-word translation for some of the European LNG Terminals(not easily accessible, understandable, and/or only available in the national language.). In the end, all this will open the door for more inefficiency, confusion, prolonged time for information gathering, leading inevitably to a market distortion.
The Concept is aimed towards bringing answers for major questions in the energy sector, spares no efforts in going after ‘the sweet spot’ in the synergistic relationship between Energy and Software. By solidifying the Role of the software in the energy, through adopting Digital solutions the LNG shipping companies are most likely to benefit from these smart solutions.
Legal basis for LNG facilities reporting:
The legal definition for LNG facility and Terminaling services can be found in “Directive 2009/73/EC” of the European Parliament and of the Council of 13 July 2009 concerning common rules for the internal market in natural gas, “Article 2 – Definitions”.
More specifically, Directive 2009/73/EC of the European Parliament prescribes the legitimacy of the LNG Terminal Operators, defined by Chapter 1, Article 2, Paragraphs (11), (12)”; Likewise, Chapter 3, Article 12, 13.
As concerns the Reporting hierarchical structure, the EU Commission Implementing Regulation “(EU) 1348/2014” on data reporting on the Wholesale Energy market Integrity and Transparency, Chapter 3, ‘Article 9: - “Rules for the reporting of fundamental data on gas”, Paragraphs (3), (5).
As denoted to be most important:” LNG system operators as defined in Article 2(12) of Directive 2009/73/EC shall report to the Agency and, at their request, to national regulatory authorities for each LNG facility”.
Determinants of Terminal Selection
According to the ‘Study on gas market upgrading and modernisation – Regulatory framework for LNG terminals Preliminary findings’[1], Madrid Forum 2019, the key drivers and determinant for choosing particular Terminal is the access to liquid gas markets, followed by Tariff level for (Terminaling) services, adjacent gas markets, Location, Range of services, National Transmission tariffs, etc.
Digital solution envisages to obliterate the sore point with the access and reservation of LNG capacity, on top of this adding more flexibility and optionality enabling the LNG shipping companies for optimization of their short-term positions. Capacity(primary and secondary) allocation mechanism will be in high demand in furtherance of non-discriminatory and transparent allocation principle.
It’s noteworthy to think of developing Market-Based Allocation mechanism, rather than Administratively determined one, whereby the former will react with agility to market signals.
Although there are market participants who express concerns and doubts about unifying and standardizing the LNG Terminaling services and access, due to different market location of the Terminals, different roles of the LNG in the different countries or simply are afraid of the ‘security of supply’, on the flipside there’re those who think that this would strengthen the EU LNG energy system. Likewise, another impending problem is with the high-level of long-term bookings jeopardizing the contractual congestion of the Terminals. (UIOLI and UIOSI don’t seem to be the turnkey.) Any upcoming influx of LNG to Europe would exacerbate the contract and capacity management, if capacity reservation on ‘short notice’ does not scale up, in place of the long-term ones.
[1]Madrid Forum 2019 - Study on gas market upgrading and modernisation – Regulatory framework for LNG terminals Preliminary findings:
Source: Stakeholder survey in September 2019 (45 responses). Factors selected as one of the three most important reasons why shippers choose specific LNG terminals for importing LNG, where “other” factors include regulated gas quality specifications, price differentials and expected profits, and netback prices Note: Respondents selected three answers each.
Proposed LNG-T collection Tool
LNG Terminals Platform concept is with a scope in the LNG Import Terminal Services, particularly all the expenses incurred between the Berthing/Mooring process ending with the Injection process into the National grid system. (e.g., Tariff tables, Fees, all fines, and penalty charges etc.) Thus, that is to empower the users to unify their management and have a good grasp of the full spectrum of LNG Import locations by giving them control over the Tariff structure and the ability to optimize for the benefit of their organization.
In this digital framework, the users will have the right tool designed to facilitate the entire process of acquiring information in a more versatile way in terms of having a good grasp on the Tariff tables and fees for more than one Terminals and thus – helping out the LNG Shipper by obtaining the necessary information at the right time with minimum effort along with more in-depth information in regards to other extrinsic value factors of holding the LNG at the Terminal – that is to say, boil-off gas rate and maximum duration of LNG storage, type of storage facilities, injection/withdrawal rate, types of capacity usage, market conditions and the capability of that LNG to reach a specific market with relatively beneficial pricing behaviour.
Takeaway....
With the New Year’s beginning, new goals and decisions have been set. In the wake of new liquefaction capacity under construction (120 MTPA) and a great deal of another at pre-FID stage, the allocation mechanism for regasification capacity in EU should be enhanced, making any unused capacity available to the rest of the market players, anything other than that, in the event of a great LNG influx, would most likely lead to hoarding and congestion hurdle with the import locations.
Alongside the adjacent liquid gas markets, the second in importance factor for choosing a particular LNG terminal are evident to be the tariff level and responsive capacity platform. Only in this way, a more agile capacity platform would allow the Terminal Operator for effectively reacting to the increased market demand, whereas the provided flexibility would enable the Terminal users (Shippers) to optimize their portfolio of short-term positions.
The energy market actors would need the hard working on a robust IT backup infrastructure in favour of all participants in the EU LNG import market, in furtherance of more flexibility, harmonization, price informativeness and good decision-making.
Appendix
‘European LNG import capacity: opportunity and risk’, Published February 2021
Samer Mosis, Desmond Wong and Luke Cottell for S&P Platts stood up for our opinion by what they say in their article “…. there is no current mechanism to manage or trade terminal access and capacity on a multi terminal basis for the efficient delivery of spot LNG where a company’s portfolio requires it. Whereas the European onshore market has the PRISMA platform to optimize available storage or transportation capacity across gas pipelines on the continent, there is no analogous product for LNG import terminal capacity. This results in capacity risk for LNG in Europe currently having no mitigating mechanisms. This results in capacity risk for LNG in Europe currently having no mitigating mechanisms. “
Also, “One of the other ways is to get access is through an auction, but you don’t have a lot of visibility of the price,” said Mark Owen-Lloyd, consultant for Photovolt Development Partners GmbH, a company that deals in small scale LNG into the UK. On top of this, there are no ways the LNG market can effectively discover the cost of securing spot capacity for a particular period of delivery. Given the differing mechanisms across the many operators in Europe, determining the effective value of a slot for a period of delivery is difficult beyond single terminal operators.” Much like the conclusions of a recent European Union study, Europe requires a harmonization of secondary market allocation procedures in order to inject transparency into slot availability and general access procedures.
“The challenge of normalizing orders and trades, while providing “like for like” transparency across various regulatory regimes, markets, and among terminals with disparate physical characteristics and processes is not a trivial exercise- its ripe for the introduction of new technologies and innovation,” says LNG Terminal Access Ltd. Founder Greg Franco. “We aim to support new LNG entrants by informing the market of available regasification capacity while allowing them to secure slots across various markets, in one place, and with a click of a button,” said Co-Founder and former Trayport President Kevin Heffron.”
“As long as opacity and inefficiency persist in Europe’s terminal capacity markets, sellers will find it difficult to efficiently achieve value for their unused capacity, be it through getting the optimum pricing for the capacity or measuring it against the cost of potential flexibility within their portfolio. Similarly, buyers will face a lack of spot capacity optionality, let alone price clarity, impacting margins and optimization abilities.”