Increased US LNG Exports to Europe Not Easy
US president Donald Trump may have reached an agreement earlier this week with European Commission president Jean-Claude Juncker to push more US LNG volumes to Europe to blunt Russia’s gas dominance in the region, but there is no guarantee it will actually happen, at least in the near-term.
In a Gastalk Webinar hosted by Gastech Insights July 26, Alex Munton, principal analyst, LNG Americas for consultancy Wood Mackenzie, said through six months this year, “very few” cargos of LNG from the US have found their way to Europe. That extends a trend that has been evident since US LNG exports began in February 2016 with the first shipments from Cheniere Energy’s Sabine Pass LNG terminal in Louisiana.
According to US Department of Energy (DoE) data, Europe and Central Asia were the destinations for just 136.3bn ft3 of US LNG exports between February 2016 and May 2018 – a little more than 10% of the 1.31 trillion ft3 exported by the US over that period. Asia and Pacific markets took 534.2bn ft3, while Latin America and the Caribbean took 421.2bn ft3, DoE data shows.
“The reason so little US LNG is currently flowing to Europe is simply because Europe – the largest part of it, northwest Europe – is a hub,” Munton said. “What that means is that LNG will flow there unless prices elsewhere and the margins available elsewhere are higher – and that, simply, is what we’ve seen. We’ve talked about the tightness in China and the Pacific Basin generally, and that’s where the greater margins have been for US LNG.”
Differentials between European and Asian gas prices have been widening in recent months, webinar moderator Susan Sakmar said, drawing more US gas to Asia, and one of the reasons for the widening spread, Munton said, is the dominance of Russian gas in the European market.
“I don’t think it’s questionable in terms of the competitive advantage that Russia has to supply gas into Europe,” he said. “It can supply at a lower cost if it really wanted to see prices in Europe drop to the level of cost of supply – it can displace US LNG, which has a higher cost.”
That isn’t likely to happen to a significant degree, Munton said, because lower prices would impact Russian gas profits, but longer term there will be increased opportunities for US LNG in Europe as the region faces its own gas production challenges.
“European dependency on gas imports is growing, and that creates market space,” he said. “I think the opportunity for US LNG longer term is to fill some, if not a significant portion, of that market space.”
As indigenous European gas supplies fall – production from the giant Groningen field in the Netherlands is being wound down due to seismicity issues, and North Sea production is also declining – there will be increased opportunities for US LNG exports to Europe, but probably not until the mid-2020s, Munton said.