Industry Trend Analysis - Brexit Uncertainty To Catalyse Supply Diversification - OCT 2017

BMI View: Plans to develop domestic LNG import capacity in Ireland will become increasingly important in order to circumvent future uncertainty with Britain's energy infrastructure stemming from the UK's decision to leave the EU.

NextDecade has announced the signing of a memorandum of understanding (MOU) with the Port of Cork Company, on the southern coast of Ireland, for the development of a 3 mtpa floating, storage and regasification unit (FSRU) and associated LNG import infrastructure. Ireland has been considering the development of LNG import infrastructure for a number of years, with the Shannon onshore LNG project having been proposed more than a decade ago.

Ireland is still very much dependant on UK energy imports, despite the start-up of the Corrib gas field in the north-west of the country at the end of 2015. As production begins to fall into the 2020s and demand continues to grow, Ireland's security of supply will once again revert to heavy reliance on the UK. In light of Britain's decision to leave the EU and the subsequent possibility of a future change in import regulations with the UK, the importance of supply diversification will add impetus to the development of LNG import infrastructure.

Modest Demand To Strengthen
Irish Gas Demand, bcm
e/f = BMI estimate/forecast. Source: BMI/EIA

Uncertainty over UK-EU Relationship Will Drive Ireland's Diversification Plans

Uncertainty stemming from Britain's decision to leave the European Union, more specifically, uncertainty over whether the UK will continue to remain part of the EU's Internal Energy Market (IEM) will incentivise Ireland to looks elsewhere for its energy supply. The IEM enables harmonised, tariff-free trading of gas and electricity across Europe. If the UK were to face tariffs on energy trade, due to the reliance on the UK as a transit country for Irish supply, Ireland may subsequently face higher consumer gas prices and higher risks to security of supply.

FSRU Over Onshore Facility

We see a greater likelihood of development for the proposed floating import facility than a larger onshore project. Firstly, the use of an FSRU presents Ireland with a more flexible solution to energy security issues, with a shorter project lead time and cheaper installation costs. The flexibility, speed and relative cost-savings of bringing floating import capacity online compared to larger onshore import projects has ensured strong growth in global FSRU capacity, which we expect to continue over the next decade (see ' FSRU Capacity Set For Strong Growth ' , June 13), particularly as LNG spot prices face downside pressure over the next few years ( see ' Singapore SLiNG: Low Prices Driving Rapid Demand Growth ' , June 27). Furthermore, a slightly smaller floating import capacity would better suit the demand trajectory for Ireland, where the capacity of a larger onshore facility may be superfluous to domestic demand.