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    France Gas Trade Forecast


    September 16, 2022 - Fitch Solutions Sector Intelligence

     

      • Oil & Gas
      • France
      • Industry Forecast
      • Fitch Solutions

      France Gas Trade Forecast

      • 15 Sep 2022
      THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS COUNTRY RISK & INDUSTRY RESEARCH and is NOT a comment on Fitch Ratings' Credit Ratings. Any comments or data are solely derived from Fitch Solutions Country Risk & Industry Research and independent sources. Fitch Ratings analysts do not share data or information with Fitch Solutions Country Risk & Industry Research.

      Key View: The absence of domestic production means that all domestic gas consumption will have to be met by imports. The ongoing geopolitical and tight gas supply situation in Europe will result in high LNG imports over 2022 and 2023, as Russian pipeline gas to Europe is increasingly limited. France has become the largest US LNG importer in Europe for example, with gas storage levels now at 90% capacity as of late August 2022. The 2022/2023 gas supply situation remains under pressure, given historically weak nuclear power plant generation and hydropower generation, in addition to expected cuts of Russian gas. High LNG imports over the winter is expected, with risks of rolling blackouts in the case of a cold winter.

      Latest Updates
      • There was a strong decrease in gas imports in 2020 due to the fall in demand linked to the Covid-19 pandemic and the slowdown in industrial and economic activity. We estimate 2021 imports mostly recovered to pre-Covid levels.
      • We expect slowly falling gas import requirements as domestic consumption eases on the back of falling gas use in the residential and power sectors.
      • Risks to LNG imports in the short term are to the upside, as the fallout from the Russian invasion of Ukraine is leading to higher LNG imports as a replacement of some Russian pipeline gas. We expect levels of LNG will remain very high relative to pre-2018 levels, giving increasing cuts of Russian gas to Europe in the context of the Russian invasion of Ukraine and European sanctions against Russia. In August 2022, France was the top destination of US LNG for the second month in a row, receiving 15 cargoes, after an already strong 13 cargoes received in July 2022. As Europe is filling up gas storage ahead of the winter season amid ongoing reductions in Russian pipeline gas, US LNG has become a primary source of supply in replacement of Russian gas. In August 2022, nearly 60% of US LNG cargoes were delivered in Europe. As of early September 2022, French gas storage is 90% full.
      • The Russian invasion of Ukraine also revives the MIDCAT pipeline link project between France and Spain. Although this project was abandoned in 2019 due to costs and environmental concerns, EU plans to reduce its dependence on Russian gas could benefit from this project materialising, as it would allow more Spanish LNG and pipeline gas from Algeria through Spain to reach the rest of Europe.
      Structural Trends

      France benefits from a well-developed infrastructure that allows diverse sources of imports. Gas imports into France in 2020 were about 40% from Norway, 20.0% from Russia, 11% from Algeria, 10% from Nigeria, 9% from the Netherlands, 7% from the US and 4% from Qatar. The majority of supplies are currently imported through pipeline, with Norway, the Netherlands and Russia being key suppliers.

      Under the terms of a contract signed with Gazprom in 2006, contracts will run until 2030 and Gazprom will supply 12bcm per annum to Engie. Gazprom said that the contracts also accounted for the delivery of additional annual exports of 2.5bcm to France via a Baltic pipeline to Germany. The Medgaz gas pipeline also links France to Algeria via Spain. Interconnections with Spain could increase to 14bcm if the 2bcm per annum MIDCAT pipeline is approved. After years of delay, the project was rejected by energy regulators from the two countries in 2019 due to concerns over its profitability and environmental impact.

      However, in the context of the Russian invasion of Ukraine, the risks of disruptions to Russian gas and the EU desires to reduce its dependence on Russian gas, we believe the pipeline project will be revived in the short term. The new pipeline link between the two countries could allow for LNG imported and regasified in Spain, and gas from Algeria, to reach more of Europe. However, given its high-cost (about USD450mn) and the fact that several years would be required for its construction, it is not a short-term solution. The context does revive the potential for this project to materialise.

      Upside Risk To LNG Imports Following Russia/Ukraine Conflict
      France - Gas Net Exports (2020-2031)

      Note: Negative implies imports; e/f = Fitch Solutions estimate/forecast. Source: EIA, Fitch Solutions

      LNG

      France is one of Europe's largest LNG consumers. About a third comes from Algeria, a quarter from Nigeria (though this varies strongly each year), with large quantities also sourced from Qatar, Norway, Nigeria and Russia. Up to 2018, France imported up to a quarter of its required gas needs via LNG. In 2019, this rose significantly, with France importing about half, or 20bcm, of its gas needs as LNG. This was the highest level over the past decade. Gas transit to neighbouring countries also nearly doubled and gas outflows to Spain and Switzerland rose by 72% y-o-y in 2019. While we expect LNG imports fell slightly to 16.8bcm and 15.7bcm in 2020 and 2021 respectively, this remains significantly higher than levels below 10bcm before 2018.

      France has four operating LNG regasification terminals - at Fos-Tonkin (capacity of 1.5bcm/year), Montoir-de-Bretagne (10.0bcm), Fos-Cavaou (8.5bcm) and the more recent Dunkirk terminal (13.0bcm) - giving the country a total import capacity of 33bcm. The Dunkirk terminal is the largest re-gasification facility in continental Europe and is connected to both France and Belgium. It was commissioned in 2017. A floating storage and regasification unit (FSRU) project is now planned by Total. The Le Havre 5bcm FSRU should be operational by end-2023.

      We do note that delays to LNG gas supplies from Algeria have created concern. France remains reliant on imports to fuel its natural gas plants and is diversifying sources to reduce vulnerability to supply interruptions. In October 2015, Engie announced that it had signed a five-year agreement with Cheniere Marketing International (a subsidiary of Cheniere Energy) to supply LNG to the Montoir de Bretagne LNG regasification terminal in France. Engie will purchase up to 12 cargoes annually, totalling some 222bn BTU between 2018 and 2023.

      Plans are also underway to build a connection from the Dunkirk LNG terminal to Germany via a 310km pipeline known as the Arc de Dierrey. The USD838mn link could see France emerge as a re-export trade hub for markets in continental Europe. The connection is timely, given the pressure on Europe to gain access to alternatives of Russian gas supplies amid geopolitical tensions.

      Interconnections with Europe could support increased utilisation rates at Dunkirk, which has to compete with several other terminals in North-West Europe. Completion of infrastructure to enable reverse flow of gas from France to Belgium along existing pipelines might secure more interest from customers and tie into more liquid spot markets on the continent.

      We expect levels of LNG will remain very high relative to pre-2018 levels, giving increasing cuts of Russian gas to Europe in the context of the Russian invasion of Ukraine and European sanctions against Russia. In August 2022, France was the top destination of US LNG for the second month in a row, receiving 15 cargoes, after an already strong 13 cargoes received in July 2022. As Europe is filling up gas storage ahead of the winter season amid ongoing reductions in Russian pipeline gas, US LNG has become a primary source of supply in replacement of Russian gas. In August 2022, nearly 60% of US LNG cargoes were delivered in Europe. As of early September 2022, French gas storage is 90% full.

      Gas Net Exports (France 2020-2025)
      Indicator 2020 2021e 2022f 2023f 2024f 2025f
      Dry natural gas net exports, bcm -39.2 -41.5 -39.5 -40.2 -40.7 -40.2
      Dry natural gas net exports, % y-o-y -6.7 5.8 -5.0 2.0 1.0 -1.0
      Dry natural gas net exports, USDbn -8.1 -14.4 -14.5 -15.0 -15.6 -16.0
      Pipeline gas net exports, bcm -22.4 -25.8 -17.5 -20.2 -21.7 -22.2
      Pipeline gas net exports, % y-o-y 2.1 15.1 -32.4 16.0 6.9 2.7
      Pipeline gas net exports, % of total 57.2 62.2 44.2 50.3 53.3 55.3
      LNG net exports, bcm -16.8 -15.7 -22.0 -20.0 -19.0 -18.0
      LNG net exports, % y-o-y -16.3 -6.5 40.1 -9.1 -5.0 -5.3
      LNG net exports, % of total gas exports 42.8 37.8 55.8 49.7 46.7 44.7
      e/f = Fitch Solutions estimate/forecast. Source: EIA, Fitch Solutions
      Gas Net Exports (France 2026-2031)
      Indicator 2026f 2027f 2028f 2029f 2030f 2031f
      Dry natural gas net exports, bcm -39.6 -39.0 -38.5 -37.9 -37.3 -36.8
      Dry natural gas net exports, % y-o-y -1.5 -1.5 -1.5 -1.5 -1.5 -1.5
      Dry natural gas net exports, USDbn -15.8 -15.5 -15.3 -15.1 -14.9 -14.6
      Pipeline gas net exports, bcm -21.6 -21.0 -20.5 -19.9 -19.3 -18.8
      Pipeline gas net exports, % y-o-y -2.7 -2.7 -2.8 -2.8 -2.9 -2.9
      Pipeline gas net exports, % of total 54.6 53.9 53.2 52.5 51.8 51.0
      LNG net exports, bcm -18.0 -18.0 -18.0 -18.0 -18.0 -18.0
      LNG net exports, % y-o-y 0.0 0.0 0.0 0.0 0.0 0.0
      LNG net exports, % of total gas exports 45.4 46.1 46.8 47.5 48.2 49.0
      f = Fitch Solutions forecast. Source: EIA, Fitch Solutions
      This report from Fitch Solutions Country Risk & Industry Research is a product of Fitch Solutions Group Ltd, UK Company registration number 08789939 ('FSG'). FSG is an affiliate of Fitch Ratings Inc. ('Fitch Ratings'). FSG is solely responsible for the content of this report, without any input from Fitch Ratings.

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