The European Union has promised to double its intake of U.S. liquefied natural gas over the next five years with the annual total reaching the equivalent of 8 billion cubic meters in 2023, double the current annual rate of imports, Forbes’ Dave Keating reported last week, citing an announcement by the European Commission.
The news is good for both sides. For U.S. LNG producers, a growing export market is always good news. For the European Union, this pledge to buy more U.S. LNG will defuse a tariff bomb that President Trump threatened to blow up last year: he said he would slap import tariffs on German cars if the EU did not play nice. With few options available, this is exactly what the EU has done.
But the increase in U.S. LNG imports is good news for the European Union in more than one way. It will also reduce its reliance on Russian gas—something that has been a thorn in the side of several central European EU members, most notably Poland and the Baltic States. These, by the way, are already the chief buyers of U.S. LNG and builders of import terminals. However, they are small potatoes compared with Germany, the EU’s largest energy consumer and gas importer.
At a recent meeting in Brussels when the import doubling pledge was made, U.S. Energy Secretary Rick Perry praised the EU for its decision saying U.S. LNG imports were more secure than Russia deliveries. European Energy Commissioner Miguel Arias Canete, however, emphasized the price component in the LNG import dynamics: “Given our heavy dependence on imports, U.S. liquefied natural gas, if priced competitively, could play an increasing and strategic role in EU gas supply,” he said. Related: Buffett’s Big Bet On Energy
Indeed, the energy industry is currently working on making U.S. LNG more competitive. The reason for this competitiveness issue is geographical: Novatek’s Yamal LNG plant is a lot nearer European import terminals and this makes the Russian gas cheaper. Novatek supplied 1.41 million tons to Europe in February, which made it the largest EU LNG supplier for that month. A billion cubic meters of natural gas is equivalent to around 740,000 tons of liquefied gas.
Besides price issues, however, there is a bigger one: there is not enough LNG demand in Europe yet, it seems. Poland and the Baltic States are building regasification terminals at an unprecedented pace eager to break their dependence on Russian gas but the demand is simply not there and the capacity of these terminals currently exceeds demand by quite a bit.
“We need to create the demand in order to justify these logistics and this investment,” said Total’s president of gas operations, Laurent Vivier. “That will come to European policy and setting what role we want gas to play in Europe”.
Even with these challenges, U.S. LNG exports to Europe have soared by more than 200 percent since last year when EC President Jean-Claude Juncker promised President Trump that the EU would buy more LNG from the United States. And they will continue rising even with the current challenges. For starters, Poland and the Baltic States are prepared to pay more for U.S. LNG. Then, the EU is firmly on a quest to reduce its dependence on fossil fuels, and LNG—along with pipeline gas—is called a bridge fuel for a reason. The faster the industry solves the price problem and the sooner EU politicians figure out a way to stimulate demand faster rather than slower, the faster both sides will be able to reap the benefits of increased LNG supply.
By Irina Slav for Oilprice.com
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