As Europe counts the cost of Russia's latest gas shut-off, there are signs it could give a boost to alternative sources of gas that currently play a minor role in the Continent's energy balance.
Russia's OAO Gazprom closed off all deliveries of gas to Europe via Ukraine on Wednesday, wreaking havoc on the economies of southeastern Europe and affecting gas supplies as far west as France and Germany. Thousands of households in Bulgaria were left without central heating, and industrial plants across the region were forced to reduce gas consumption, with some shuttering completely.
But the dispute has coincided with a fundamental shift in the global natural-gas market, which has damped the impact of the crisis for some European countries. Europe has been increasing its imports of liquefied natural gas, or LNG, a kind of gas that is cooled to temperatures of minus 160 degrees Celsius and shipped as a liquid to global markets in oceangoing tankers. As Gazprom slashes its shipments to Europe, this is LNG's moment.
"For the first time we're seeing competition to Russian pipeline gas from LNG," said Thane Gustafson, an expert on Russian oil and gas at Cambridge Energy Research Associates, known as CERA. "It's a classic example of technological surprise."
Prior to the advent of LNG, which was first traded in Algeria in the 1960s, gas could be transported only by pipeline. Converting it into liquid form turned it into a fungible commodity, like crude oil, that can be moved around the globe. World-wide, LNG flows have doubled in the past decade, and now meet 7% of total world demand for natural gas, according to the Paris-based International Energy Agency.
That is expected to grow, as the world sees an unprecedented expansion of LNG capacity. Gas producers such as Qatar, Nigeria and Indonesia are building new liquefaction facilities, and regasification facilities that convert the LNG back into gaseous form are being built all over the world, from China and India to the U.S. The IEA forecasts the volume of LNG trade to grow to 340 billion cubic meters by 2015 from 201 billion cubic meters in 2006.
One hitch to this growth scenario: money. LNG requires expensive plants to turn the liquid back into gas, as well as long-term purchase commitments to justify such large infrastructure investments. The slumping global economy could force some LNG projects to the sidelines.
Many of the new LNG plants in the Middle East were built with North American markets in mind. But the U.S. has seen a big uptick in domestic gas production, especially from unconventional reservoirs -- tightly packed sands, coal beds or dense rocks called shale. That has reduced demand for imported LNG, and analysts now predict that surplus will find its way to Europe.
"LNG represents a significant safety valve this winter," said Simon Blakey, co-author with Mr. Gustafson of a CERA report on the Russia-Ukraine gas crisis.
Meanwhile, the pattern of LNG trading is changing. Until recently, much of it was confined to the Asian-Pacific region. Industry analysts say that market will continue to grow, but demand from Europe will increase even more. The IEA says it expects LNG flows from Africa and the Middle East to Europe and North America to quickly overtake those flowing eastward.