U.S. LNG Exports to Take Center Stage At G7 Meeting

• U.S. House Speaker McCarthy looks to promote U.S. LNG during the upcoming G7 meeting.
• Last year, U.S. LNG exports to Europe jumped 140%Y/Y to 56 billion cubic meters (bcm) as Europe ditched Russian gas.
• Interestingly, both European and U.S. benchmark natural gas prices have been rising recently despite Europe’s gas stores being nearly full.

U.S. House Speaker Kevin McCarthy has revealed he plans to promote U.S. natural gas exports at an upcoming G7 meeting. McCarthy will frame his agenda in the context of Europe buying more U.S. gas as a way for the continent to wean itself off Russian gas following its war in Ukraine.

“If we just replace Russian natural gas with American in Europe alone for one year, we would lower 218 billion tons of CO2 emissions because our natural gas is cleaner. America would be economically stronger, our prices would be lower and the world would be safer,”  McCarthy said on Fox News’s Sunday Morning Futures.

Earlier in the current year,  U.S. secretary of State Antony Blinken revealed that they had discussed with EU foreign policy chief Josep Borrell regarding the U.S. and the EU's unprecedented cooperation on energy security.

"We share our commitment to prevent a climate catastrophe through accelerating the global clean energy transition, building resilient, secure and diversified supply chains for renewable energy, and doing it in a way that creates good paying jobs and lowers costs for people on both sides of the Atlantic," Blinken said.

Last year, U.S. LNG exports to Europe jumped 140%Y/Y to 56 billion cubic meters (bcm) as Europe ditched Russian gas. Also, for the first time ever, U.S. LNG exports exceeded pipeline exports of natural gas on an annual basis.

LNG Deals

U.S. companies have continued striking long-term deals to supply vital gas to their European and overseas customers. Recently, the country’s largest producer of LNG, Cheniere Energy (NYSE:LNG), entered a long-term liquefied natural gas sale and purchase agreement with Equinor ASA (NYSE:EQNR) that will see the Norwegian national oil company purchase 1.75M metric tons/year of LNG on a free-on-board basis for a purchase price indexed to the Henry Hub price, for a 15-year term.

Related: 

Last month, Cheniere signed another long-term liquefied natural gas (LNG) sale and purchase agreement with China’s ENN Energy Holdings. ENN will purchase ~1.8M metric tons/year of LNG on a free-on-board basis at Henry Hub prices for a 20-year term, with deliveries to commence mid-2026 ramping up to 0.9 million tonne per annum (mtpa) in 2027. 

The deal is subject to the completion of Cheniere’s Sabine Pass project, which is being developed to include up to three liquefaction trains with an expected total production capacity of ~20M tons/year of LNG. 

Currently, Sabine Pass has six fully operational liquefaction units aka ?“trains”, each capable of producing ~5 mtpa of LNG for an aggregate nominal production capacity of ~30 mtpa. Cheniere processes more than 4.7 billion cubic feet per day of natural gas into LNG. Sabine Pass has multiple pipeline connections to interstate and intrastate pipelines and is located less than four nautical miles from the Gulf of Mexico thus providing easy access to seafaring vessels. 

Last year, ENN signed a 13-year deal with Cheniere to purchase 900K metric tons/year, again based on Henry Hub prices.

High Gas Prices

Interestingly, both European and U.S. benchmark natural gas prices have been rising despite Europe’s gas stores being nearly full.

Front-month futures at the Dutch TTF hub, the benchmark for Europe’s gas trading, had increased by 10% to 38.27 euros per megawatt (MWh) as of 1330 hrs ET on Monday. TTF prices have now risen 45.6% over the past 30 days despite increasingly bearish inventory dynamics. According to Gas Infrastructure Europe (GIE) data, EU gas inventories stood at 103.84 billion cubic meters (bcm) on 13 August, up 19.25 bcmY/Y and 17.86bcm above the five-year average. Europea’s gas stores are now 89.5% full, a level they took 57 more days to reach last year. The pace of refill continues being torrid, with the build over the past week clocking in at 2.56 bcm, the fastest in any seven-day period since late-May. EU gas inventories are currently just 5.59 bcm below last year’s high; a mere 8.64bcm below the all-time high and just 12.25bcm below the GIE estimate of full capacity.

It will be interesting to see how gas markets react when Europe’s gas stores are finally full.

Luckily for the oil bulls, the oil price outlook is brighter. Commodity analysts at Standard Chartered have predicted large inventory draws peaking at 2.9 mb/d in August. StanChart estimates that June demand was about 0.5 mb/d below August 2019’s all-time high, but expects the record will be exceeded in the current month. According to the analysts, highly effective producer output restraint, led by Saudi Arabia, will create the conditions for a price rally that will take Brent prices above this year high at $89.09/bbl onto their Q4-average forecast at $93/bbl, with a likely intra-quarter high above $100/bbl.

By Alex Kimani for Oilprice.com

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