The gas crunch in Europe has hurt many businesses, but some are making big money out of it. And U.S. LNG producers want a bigger piece of the pie.
Last year, U.S. LNG was in decline amid the oil and gas consumption slump. New liquefaction capacity was being delayed, and existing capacity was idled. Now, it's a completely different world, and energy companies are once again making ambitious plans.
Tellurian LNG, for instance, has plans for a $15-billion export terminal on the Gulf Coast, the Financial Times reported, citing the company's chief executive Charif Souki.
"Yes, it's a good thing for American LNG," Souki told the FT, referring to the soaring gas prices. "It is going to depend only on whether the infrastructure can be built in the US or not."
Indeed, it is a very good thing: Henry Hub prices are currently a lot lower than prices in Asia or Europe, at $6 per million British thermal units as of Tuesday, versus $29 per mmBtu in Europe and Asia, per a Reuters report. In this context, demand for U.S. LNG is booming.
The same report, however, notes the constraints that are motivating the new capacity ambitions. Natural gas flows to liquefaction plants in the United States slipped from 10.5 billion cu ft daily in August to 10.4 billion cu ft daily despite the fact that the fact gas prices had already started rising in Europe and Asia. The chances of these flows rising above 10.5 billion cu ft daily are nonexistent: there is no liquefaction capacity to take additional volumes in. Therefore, new capacity is the simplest solution.
According to one energy consultant who spoke to the FT, there could be five new LNG projects coming in the United States over the next two to three years, including expansions of existing facilities. This, according to analysts, could eventually turn the United States into the world's second-largest LNG exporter after Australia—unless Qatar keeps its number-one place.
No matter how the top three LNG exporters are arranged, the United States will likely remain one of them, even with the Biden administration's energy transition agenda that frowns upon all fossil fuels, including natural gas. After all, a transition is a transition, but why leave the European market to Russia when you could take a piece of it?
Right now, Europe is ripe for the taking. After years of talking about diversification of gas supplies but doing little to advance this diversification, now Europe is paying for its short-sightedness. It has no way to force Gazprom to send more gas its way because Gazprom is fulfilling its contractual obligation, and that's where things end until Nord Stream 2 is approved. Norway can only pump so much gas to its neighbors and fellow Europeans. The only thing left is LNG.
Most LNG in the world is supplied under long-term contracts, but there is a pretty lively spot market for the commodity, too. Normally, LNG producers go after long-term contracts to secure funds for the construction of their LNG facilities. These have been in short supply recently, which forced the shelving of several new U.S. projects. Now, these may get a second lease on life if European importers decide to put their money where their mouths are concerning supply diversity.
"Europe is currently importing around 70% of the gas it needs, and this share is expected to increase in the coming years," the EU and the U.S. said in a joint statement in 2019 amid a Trump administration campaign for the increase in U.S. LNG exports to the union.
"Liquefied natural gas is also an important part of the EU's diversification strategy; and as the second biggest single gas market in the world after the U.S., the EU is therefore an attractive option for the U.S.," the statement also said. Little has changed since then, it seems, despite the EU's own green push.
Of course, the LNG projects currently planned for construction will not be finished soon enough to help alleviate the current gas shortage in Europe. But the longer-term outlook remains optimistic.
"We have to have an eye on next winter and the winter after that, in order to make sure that, while we focus on the energy transition, we are addressing the needs of today," U.S. State Department energy envoy Amos Hochstein told the FT.
Of course, competition remains intense among LNG exporters. Qatar is also building its capacity to maintain its number-one spot globally, and it boasts much lower production costs than other producers. Australia has also staked a big claim in the LNG export market. If demand remains as strong as it is currently, all this additional capacity would be good news for buyers and sellers alike.
If demand drops, however, some companies could find themselves with stranded LNG assets. For now, however, the danger of this happening seems remote. The energy transition would need to advance a lot further before it threatens the LNG industry, it seems.
By Irina Slav for Oilprice.com
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