The UK’s surprise vote to leave the European Union on June 23 clearly has wide implications for its domestic gas and LNG market but will also have an impact on its neighbours. Ireland, an EU member, has close gas and power trading links with the UK mainland, and has approval for development of an LNG import terminal, Shannon LNG, on its Atlantic coast.
If developed, Shannon LNG, expected to be located in County Kerry, would have regasification capacity of 28.3 million cubic metres per day of gas, four LNG tanks and jetties that could accommodate Q-Max LNG carriers. Its location would be highly favourable in terms of proximity to the healthy Atlantic market. This has buoyant LNG supplies from the US Gulf, Trinidad, Nigeria and other well-established sources of the fuel. It would supply gas into the Irish grid, which provides gas to power stations
Despite its technical merits and being designated as a project of common interest (PCI) under EU support mechanisms, doubts have emerged on the likelihood of Shannon LNG making it off the drawing board. A dispute emerged with the Irish state regarding gas interconnector tariffs, which was not fully resolved, and Shannon LNG was effectively sidelined when one backer, the US’ Hess, left the project in early 2016. The slump in European LNG imports up to 2014 and a general perception that Western Europe was well-supplied with gas also added to questions about whether Shannon LNG would progress. Given this year’s strong recovery of the European gas market, and the expectation that demand will continue to rise, market fundamentals have provided fresh justification for new LNG import terminals to be developed in Europe. France will open the Dunkerque LNG terminal in 2016, while the UK will add Meridian LNG to its fleet later this decade. Permission for Croatia’s Krk Island LNG terminal to proceed has also been confirmed.
The prime motivation for Ireland in reinvigorating the Shannon LNG project, once the UK has formally left the EU, would be to ensure security of gas supply. This becomes an issue for Ireland if the UK no longer has to comply with elements of the EU single energy market, which calls for convergence and harmonisation of gas trading conditions among member states.
Ireland may not be able to rely upon future gas supplies from the UK under such a scenario, should the UK wish to transfer surplus gas into storage, rather than sell it to EU neighbours, for instance. As a non-EU state it would be entitled to do this.
Shannon LNG also faces new pressures as a result of the UK decision to opt out of the EU. Under the EU’s Regulation on Energy Market Integrity and Transparency (REMIT), all wholesale gas trades conducted by EU members must be reported to a supra-national regulator, the Agency for the Co-operation of Energy Regulators (ACER), based in Slovenia. These gas trade regulations also cover LNG.
Should the UK no longer comply with this directive, while Ireland does, it may put Shannon LNG at a competitive disadvantage.