Trump: Europe will buy American LNG

Russia supplies around one-third of LNG that the EU consumes, but rivals with vast natural gas reserves – such as the U.S. – are looking to challenge the status quo.



Adam Muspratt
08/01/2018

Europe has become an enticing destination for liquefied natural gas (LNG) exporters as gas production in the region continues to shrink while demand steadily rises. At the moment, Russia supplies around one-third of LNG that the EU consumes, but rivals with vast natural gas reserves – such as the U.S. – are looking to challenge the status quo.  

However, the gas conundrum that Europe faces isn’t just a matter of economics as the political ramifications will also play a huge role.

Trump Says, Europe to Become ‘Massive’ Buyer of U.S. LNG 


The U.S. President hasn’t hidden the fact that he wants Europe to diversify its energy supplies and rely less on Russia.

On Monday, in a press conference with the Italian Prime Minister Giuseppe Conte, the U.S. president stated that Europe will build 9-11 terminals to import LNG from the U.S. 

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These events follow a meeting last week between U.S. President Donald Trump and the head of the European Commission Jean Claude Junker.  Junker agreed that Europe will build more terminals to import U.S. LNG The meeting intended to de-escalate the outbreak of a potential transatlantic trade war.

The U.S. President told reporters, “we are already talking to the European Union about building anywhere from 9 to 11 ports, which they will pay for, so that we can ship our LNG over to various parts of Europe.” He went on to say, “They want very much to do that, and we have plenty of it,” referring to the U.S. shale boom, which has unleashed record supplies of the heating and power-plant fuel.

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The U.S. is in the middle of an energy boom. It is no longer reliant on foreign energy sources and is exporting more energy to its allies
than at any other time in recent history. In fact, before 2016 the U.S. wasn’t shipping any LNG to Europe at all. The natural gas sector in the U.S. has benefitted from increased innovation and policies which promote deregulation.

In the next few years, the U.S. will be one of the foremost natural gas producers – a direct result of investing heavily in facilities to import LNG over the last few years. These comments come as four new U.S. LNG projects are expected to start by 2020.

Since early 2016, the U.S. has shipped 41 cargoes of LNG to Europe, according to ship tracking data compiled by Bloomberg. That’s is around 10 per cent of U.S. LNG exports. 

 

 

Is Europe dependent on Russian energy?


Russia has largely been uncontested in this sphere and remains Europe’s top supplier of LNG. However, It is increasingly looking like it will face significant challenges from both the U.S. and Qatar. According to the International Energy Agency, LNG imports to Europe are poised to rise almost 20 per cent by 2040 in comparison to 2016 levels.

Is there a demand in Europe for U.S. liquefied natural gas? 


Many European nations, particularly those in Eastern Europe are aiming to diversify their supplies and reduce dependence on imports from Russia, so there is clearly an appetite for alternatives such as U.S. LNG. For example, Poland and Lithuania have already built LNG import facilities. In addition, Poland is likely to build a floating LNG terminal in Gdansk. 

The demand for LNG in Europe is also rising. This coincides with reductions of domestic production in Europe, demonstrated by plans to shut down the Groningen field - the largest gas field in Europe –by 2030. The Dutch government is winding down production of the facility to limit damage from drilling-induced earthquakes. Meanwhile, France is aiming to shut down its nuclear plants further reducing Europe’s capacity to produce LNG. 

How many import faculties will European gas companies build? 


The market will dictate how many LNG facilities are built in Europe over the coming years which – at the moment – issubstantially fewer than the 11 that the President suggested. Three-four is a more likely number according to some experts. The chief reason why Europe will build a small number of LNG facilities because the existing 24 facilities operating in Europe are not running at full capacity.  

“In 2017 the average utilization of [Russian] terminals was 26% – leaving ample margin for more imports from the US if competitively priced,” the Commission said.  

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Imported Russian gas is about $6mmBtu in comparison to 
U.S. which is around $5mmBtu. It is likely that Gazprom – Russia’s largest gas producer – will enforce aggressive commercial action to undercut U.S. LNG, just as they have done in the past against Qatari attempts to penetrate the European market

However, gas exports to Europe are one of Russia’s largest sources of income, and the nation will peruse aggressive policies to protect its market share. In addition, the U.S. faces stiff competition the likes of the Caspian Sea gas project and even Turk Stream. 

The pipeline that the U.S. will face the most competition with is Nord Stream II. EU nations frequently draw attention to diversifying energy sources but in practice, the completion of Nord Stream II would virtually cement Europe’s dependence on Russia as its primary gas supplier.

The Trump administration has been increasingly critical of Nord Stream II and has slapped sanctions on European companies working on the project. The pipeline is a joint venture between Russia, France, Austria, Netherlands and Germany. It has the goal of delivering 55 cubic meters of Russian natural gas to the EU.  

The future is looking bright for U.S. LNG exports, which is on course the becoming the worlds third largest exporter by 2020. In addition, five new LNG export facilities are also expected to become operational in the next few years.  

Potential areas for an LNG facility include Croatia and Poland, but the European market is somewhat restricted. We may also see U.S. LNG heading to markets outside of Europe, such as China and Mexico.  

 

 

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