A secure energy supply for Europe Our natural gas supply is made up of several elements
The use of natural gas in Europe is increasing. In 2012, consumption in the 27 European Union Member States was 490 billion cubic meters per annum, and in Germany alone it was 88 billion cubic meters. Studies have predicted this to increase 1.5% annually, and in 2020 consumption will be 550 billion cubic meters in Europe and 95 billion cubic meters in Germany. At present, 160 billion cubic meters of the gas consumed in Europe comes from Europe, but this will fall to 140 billion cubic meters by 2020.
As domestic production falls, EU states are increasingly dependent on imports from other regions in the world to meet their growing natural gas requirements. Supplies from Russia and Liquefied Natural Gas (LNG), which is mostly sourced from the Middle East, play a central role in meeting this demand. The proportion of the natural gas consumed by Western Europe which is obtained from Russia alone will rise to 30% by 2020, from 25% in 2012.
In order to ensure a reliable supply, Gazprom, Wintershall, E.ON, Gasunie and GDF Suez built the Nord Stream pipeline. Its two parallel pipelines can transport up to 55 billion cubic metres of natural gas per year. Beginning in the Russian town of Vyborg, it crosses about 1,200 kilometres of the Baltic Sea before reaching the landing station in Lubmin, near Greifswald in Germany.
The significance of Liquefied Natural Gas (LNG)
In addition to these new pipelines, ships carrying LNG are expected to play an important role in the supply of natural gas from 2015 onwards. At the moment, supplies of LNG to the EU are falling because the companies offering the gas can benefit from higher prices in Asia and South America, where cheaper gas supplied by pipelines is less readily available.
But studies have predicted that LNG deliveries could satisfy up to 24% of European gas demand by 2020. In particular, the UK, France, Spain and Italy are predicted to import significantly more LNG than they do today. The most important LNG suppliers are Qatar, Nigeria and Algeria, but the USA will also ship more LNG to Europe in future.
Gas purchasing: long-term agreements and spot markets
How exactly does gas purchasing work? Gas producers often negotiate agreements with their customers which are based on long term contracts – this is important for long-term security of supply. The price for natural gas is often linked to the price of crude oil (oil-indexed gas price). However, this price mechanism, which dates back to the 1970s, has been becoming less prevalent for some years now.
As well as long-term agreements, the spot markets are also significant. The term comes from the expression “on the spot” (i.e. immediately) and describes the essence of these trading markets, where gas is traded in the short term or immediate future.
As the price of gas fluctuates on a daily basis, traders can pay above or below the prices in long term agreements, depending on market conditions. The main spot markets for natural gas are the European Energy Exchange (EEX) in Leipzig and the National Balancing Point (NBP) in UK. Employees of the trading department at WINGAS buy natural gas here and at other trading hubs, to cover the company’s short-term needs and to optimise our portfolio.
The natural gas storage facilities in Europe also make an important contribution to supply security, allowing EU states to stock up on gas. There are currently 43 underground storage facilities in Germany alone, with a total capacity of about 20 billion cubic metres. WINGAS has spun off its storage operations into astora GmbH & Co. KG. The company operates a number of natural gas storage facilities including the largest in Western Europe in Rehden, Lower Saxony, which has a capacity of 4.4 billion cubic meters.