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Simon Watkins

Simon Watkins

Simon Watkins is a former senior FX trader and salesman, financial journalist, and best-selling author. He was Head of Forex Institutional Sales and Trading for…

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U.S. Stresses Importance Of LNG For Europe

  • The U.S. and its allies are rallying together to invest in gas supplies.
  • The allies aim to prevent being held hostage to Russia's energy weaponization.
  • The U.S. stresses the need for LNG to be supplied to Europe to mitigate Russia's dominance in gas supply.
LNG

Russian President Vladimir Putin belied that his invasion of Ukraine in 2022 would go largely unopposed by the U.S. and its allies for the same reason that he was able to invade the country in 2014 and annex Crimea. That is, that the non-U.S. part of the North Atlantic Treaty Organization (NATO) – Europe – would not to risk being cut off from the cheap and plentiful supplies of Russian gas that they had been using for decades to power their economies. He was wrong this time, for a variety of reasons analysed in my new book on the new global oil market order. Not only were the NATO allies not prepared to roll over this time in favour solely of their own interests but Putin’s actions in Ukraine have re-energised the U.S.-led security, economic, and energy alliance comprising most European countries and many Asian ones as well. To safeguard these gains, the U.S. last week stressed the necessity for the allies to ramp up investments in gas to ensure that never again would the alliance be hostage to the weaponised energy supplies of Russia.

Speaking at a G7 ministers’ meeting on climate, energy and environment in Japan, U.S. Assistant Energy Secretary, Andrew Light, highlighted the need for continued investments by the allies in new gas supplies. He also stressed that U.S. liquefied natural gas (LNG) supplies remain critical to European energy security as it continues to reduce its reliance on Russian gas. He added that the U.S. is not concerned about Russia still being able to sell its oil and gas, despite sanctions, as it is allowing countries to buy energy at lower prices. This feeds into the idea that the price cap on Russian energy sales is also part of the U.S.’s broader policy of keeping oil and gas prices down, and with the ‘Trump Oil Price Range’, as also analysed in my new book on the new global oil market order. This is not only for the U.S.-centric economic and political reasons examined in the book, but also because rising energy prices drive inflation higher, in turn pushing fuelling the interest rates used to combat it, and increasing the prospect of recession in many of the U.S.’s allies. Interestingly as well, and in keeping with the geopolitical realignment evident since Russia’s invasion of Ukraine, Light also underlined that the U.S. and its allies are also looking to diversify the supply chains of materials that have long been dominated by China. “We don't want to be at the mercy of China and put them in the same position vis a vis the rest of the world as Russia has been with Europe,” Light concluded.

Prior to Russia’s invasion of Ukraine, the only real flurry of activity in terms of a concerted effort by any group within the European Union (EU) was aimed at ensuring that Russia did not stop supplying its member states with either oil or gas, due to their not being able to pay in the way Moscow preferred. This followed the 31 March 2022 decree signed by President Vladimir Putin that required EU buyers to pay in roubles for Russian gas via a new currency conversion mechanism or risk having supplies suspended. According to an official guidance document sent out to all 27 EU member states on 21 April by its executive branch, the European Commission (EC): “It appears possible [to pay for Russian gas after the adoption of the new decree without being in conflict with EU law],… EU companies can ask their Russian counterparts to fulfil their contractual obligations in the same manner as before the adoption of the decree, i.e. by depositing the due amount in euros or dollars.’” The EC added that existing EU sanctions against Russia also did not prohibit engagement with Russia’s Gazprom or Gazprombank beyond the refinancing prohibitions relating to the bank. Several EU member states made it plain that they would veto any EU proposal to ban Russian gas (or oil) imports – and all 27 EU member states must vote in favour of such a ban for it to come into effect. 

However, under considerable ‘encouragement’ from the U.S., Germany – the de facto leader of the EU – performed a 180-degree turnaround in its previously fiercely pro-Russian energy stance, bolstered in the first instance by a U.S.-led deal for LNG supplies from Qatar. LNG remains the most flexible form of gas for buyers, being readily available in the spot markets and able to be moved very quickly to anywhere required, unlike gas sent through pipelines. Unlike pipelined gas as well, the movement of LNG does not require the time- and money-intensive build-out of vast acreage of pipelines across varied terrains and the associated heavy infrastructure that supports it. In essence, LNG supplies are the ‘swing gas supply’ in any global gas supply emergency, as was the case back then in the first half of 2022. May of that year, then, saw Qatar sign a declaration of intent on energy cooperation with Germany aimed at becoming its key supplier of LNG. These new supplies of LNG from Qatar would come into Germany through existing importation routes augmented by new infrastructure approved by the German Bundestag on 19 May. This would include the deployment of four floating LNG import facilities on its northern coast, and two permanent onshore terminals, which were under development. 

These plans would run in parallel with, but were likely to be finished significantly sooner than, the plans for Qatar to also make available to Germany sizeable supplies of LNG from the Golden Pass terminal on the Gulf Coast of Texas. QatarEnergy holds a 70 per cent stake in the project, with the U.S.’s ExxonMobil holding the remainder. The Golden Pass terminal’s estimated send-out capacity is projected to be around 18 million metric tonnes per annum (mtpa) of LNG and the facility is expected to be operational in 2024. Also heavily linked in with the U.S. was a very similar announcement in December 2022 of two sales and purchase agreements between QatarEnergy and the U.S.’s ConocoPhillips to export LNG to Germany for at least 15 years from 2026. These two deals between Berlin and Doha will provide Germany with 2 million mtpa of LNG, sent from Ras Laffan in Qatar to Germany’s northern LNG terminal of Brunsbuettel. Crucially as well to the solidarity of the NATO alliance, QatarEnergy’s chief executive officer (also Qatar’s Energy Minister), Saad al-Kaabi, stressed the long-term nature of this new energy arrangement. He said: “[The two sales and repurchase agreements] mark the first ever long-term LNG supply agreements to Germany, with a supply period that extends for at least 15 years, thus contributing to Germany’s long-term energy security.” 

Around one month after the declaration of intent on energy cooperation with Germany was signed by Qatar, other major new gas deals started being signed by flagship energy companies from Europe, as also analysed in my new book on the new global oil market order. Qatar, in the first instance, signed new partnership deals with France’s TotalEnergies and Italy’s Eni for the US$30 billion North Field Expansion project. TotalEnergies also signed a partnership agreement with the Abu Dhabi National Oil Co. (ADNOC) that included cooperation in trading, product supply, and carbon capture, utilisation and storage. It then signed a massive four-pronged US$27 billion energy deal with Iraq. In the meantime, it was announced that Eni was to sign an agreement with Libya’s state-owned National Oil Corporation (NOC) that would see it invest around US$8 billion to produce about 850 million cubic feet per day (mmcf/d) from two offshore gas fields in the Mediterranean Sea. Eni had another huge success around the same time – in conjunction with U.S. hydrocarbons giant, Chevron – with a major new gas discovery in the 1,800 square kilometre Nargis offshore area concession in Egypt. The broader importance of these deals between European companies and previously largely overlooked gas suppliers was subtly acknowledged in TotalEnergies’ official comments on the UAE deal. ‘[The agreement includes] the development of oil and gas projects in the UAE to ensure sustainable energy supply to the markets and contribute to global energy security,’ it said.

For the U.S., the onus - aside from facilitating more deals between Europe and Middle East and North Africa suppliers - remains on ensuring plentiful and reasonably priced supplies of its LNG,. The omens for this are extremely encouraging, with the Energy Information Administration (EIA) in March forecasting that U.S. LNG exports will average 12.1 billion cubic feet per day (Bcf/d) in 2023, a 14 per cent (1.5 Bcf/d) increase compared with last year. The agency also expects LNG exports to increase by an additional 5 per cent (0.7 Bcf/d) next year. These forecasts are based almost exclusively on continued high global demand for LNG to displace pipeline natural gas exports from Russia to Europe.

By Simon Watkins for Oilprice.com

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  • Mamdouh Salameh on April 25 2023 said:
    Of course the United States will stress the importance of LNG for Europe because it will continue to benefit from selling its LNG at exorbitant prices estimated to be 3-4 times the price it sells it at its domestic market.

    Under the pretext of energy security for Europe, successive American administrations have opposed Soviet and later Russian gas pipelines to Europe since the early 1960s. And to sever any prospect of Europe’s returning to import Russian piped gas, the US even sabotaged both Nord Stream 1 and Nord Stream 2 gas pipelines. It had a motive, an economic benefit and a strategic objective. These three descriptions fit the US like a hand in a glove.

    Soon the hapless EU will awake to the fact that far from being altruistic towards them, the United States is exploiting them by supplying it with LNG at prices far higher than Russian piped gas supplies.

    This might jog the EU’s memory to the fact that their economies particularly Germany were built on Russia’s cheap and plentiful piped gas supplies. That is when it will decide to resume imports of Russian gas either via repaired Nord Stream 1 and Nord Stream 2 or via the Turk Stream from Turkey albeit at lower levels than the pre-Ukraine levels.

    Dr Mamdouh G Salameh
    International Oil Economist
    Global Energy Expert

Leave a comment




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