New IHS Markit Report: The Globalization of European Gas

EuropeÔÇÖs gas market is being transformed as new sources of supply and
greater network integration benefit consumers while making up for
declining indigenous sources

LONDON–(BUSINESS WIRE)–A major transformation is poised to advance EuropeÔÇÖs energy security
goals and improve natural gas flows in European markets, according to a
new report by business information provider IHS
Markit (Nasdaq: INFO). New sources of supply via increasing global
liquefied natural gas (LNG) capacity and pipelines, along with continued
market integration, will provide European gas customers greater
flexibility and choice and further the integration of Europe with global
gas markets and prices.

The report, entitled European Natural GasÔÇöThe New Configuration, says
that most European gas customers will have greater opportunity to choose
among competitive supply options by the early 2020s. The report is based
on insights drawn from the new comprehensive IHS Markit Pan-European
Gas Flows and Price Differentials Model, which explores the
implications of key developments such as new infrastructure, competitive
purchasing and global pricing dynamics.

The report points out that the changing landscape for gas in Europe is
especially timely considering the decline of indigenous supply sources
on the continent. The Dutch government recently announced that
production from its Groningen fieldÔÇöhistorically the bedrock of EU
supplyÔÇömust be reduced drastically by 2022 and must close completely ÔÇ£as
soon as reasonably possible.ÔÇØ Prior to this announcement, the
Netherlands and the United KingdomÔÇötwo key pillars of European
supplyÔÇöhad already declined from meeting 35 percent of EU demand 15
years ago to just 17 percent today.

Greater capacity for gas importsÔÇöfrom several currently planned and
potential pipelines such as Nord Stream 2, Eugal, Turk Stream and
Trans-Adriatic Pipeline (TAP) and Trans-Anatolian Pipeline (TANAP)ÔÇöalong
with greater LNG import capacity, will more than compensate for the
reduction in indigenous supply, the report says. IHS Markit projects
that global LNG capacity will increase by 40 percent from the beginning
of 2017 to 2022. Part of this growth will come from the United States,
where new LNG capacity to export globally will more than triple to 67
million tons over the same period.

IHS Markit expects EuropeÔÇÖs total natural gas import capacity to
increase by more than 20 percent by 2020. In 2017 European consumers
imported 348 billion cubic meters of gas, which meant that EuropeÔÇÖs
total import capacity was used at 58 percent. There is significant spare
capacity, notably in LNG regasification facilities in western Europe.
Additional investmentsÔÇöprimarily pipelinesÔÇöcould increase import
capacity by more than a further 100 Bcm. These levels of capacity will
be sufficient to meet a growing demand for natural gas imports as
onshore and North Sea supplies decline, and critically, support the role
of storage in meeting winter and weather fluctuations.

ÔÇ£Gas supply to Europe is on the cusp of a fundamental shift that will
ultimately transform flow patterns for the entire continent,ÔÇØ said Daniel
Yergin, vice chairman, IHS Markit. ÔÇ£Europe will continue to become
more integrated with the world market, marking the globalization of
European gas.ÔÇØ

ÔÇ£Europe is well positioned for these transformative changes as the
traditional sources of supply are replaced by imports from an emerging
diversified and growing global gas market,ÔÇØ said Michael
Stoppard, chief global gas strategist for IHS Markit. ÔÇ£The expanded
availability of diverse sources of supply is built on the twin pillars
of pipelines and LNG.ÔÇØ

As a result of growing imports and greater connection to LNG, IHS Markit
expects European gas prices to be increasingly set by the global market.
Spot gas prices across the EU should converge within a narrow price
range. This closer convergence in pricing will stand in contrast to
North America where prices can vary widely across the continent.

The report observes that a vast majority of customers in the European
Union are today located in highly liquid and competitive marketsÔÇöthe
result of a decades-long path of regulatory liberalization and
competition policies. But, the report says, the completion of EuropeÔÇÖs
Internal Energy Market needs to continue to ensure that remaining areas,
primarily in central/southeastern Europe, can be fully integrated. These
market changes are consistent with the EUÔÇÖs energy supply security
strategy.

ÔÇ£This coming transformation of European gas flows encapsulates profound
and ongoing steps toward the goal of creating a single, pan-European gas
market,ÔÇØ said Shankari
Srinivasan, vice-president, gas & power for Europe at IHS Markit.
ÔÇ£The physical point at which gas enters the European market, whether by
pipeline or LNG tanker, and the identity of the supplier is becoming of
less and less significance. Market forces are creating checks and
balances that bring cost-effective gas supply to consumers.ÔÇØ

• Download the complete report, European Natural GasÔÇöThe New
  Configuration here: https://ihsmarkit.com/Info/0518/european-natural-gas-configuration.html
• For more information about the report and the IHS Markit Global Gas
  Service, contact Shankari Srinivasan, +33 176 76 3039 or [email protected]
• For media inquiries, contact Jeff Marn at +1 202-463-8213 or [email protected]

About the IHS Markit Pan-European Gas Flows and Price Differentials
Model

The new IHS Markit Pan-European Gas Flows and Price Differentials Model
solves for the most efficient pattern of gas flows within Europe given
assumptions regarding gas demand and supply, as well as benchmark prices
at the TTF hub. The assumptions can be adjusted to explore any demand,
supply, or pricing sensitivities.

The key distinguishing characteristic of the model is that it minimizes
transportation costs within Europe, rather than using a standard
cost-curve approach, which is not appropriate for the European gas
market.

About IHS Markit (www.ihsmarkit.com)

IHS Markit (Nasdaq: INFO) is a world leader in critical information,
analytics and solutions for the major industries and markets that drive
economies worldwide. The company delivers next-generation information,
analytics and solutions to customers in business, finance and
government, improving their operational efficiency and providing deep
insights that lead to well-informed, confident decisions. IHS Markit has
more than 50,000 business and government customers, including 80 percent
of the Fortune Global 500 and the worldÔÇÖs leading financial institutions.

IHS Markit is a registered trademark of IHS Markit Ltd. and/or its
affiliates. All other company and product names may be trademarks of
their respective owners ┬® 2018 IHS Markit Ltd. All rights reserved.

Contacts

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+1 202 463 8213
[email protected]
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Team
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