Shipments of US ‘freedom gas’ help keep Europe warm despite Russian cuts
In recent months, Russian Gazprom has halved its deliveries of natural gas to Europe, to 17% of supply. So far, Europe is making up for this “near-shrinkage,” as IHS-Markit analysts call it, by scouring the world for shipments of deeply cooled liquefied natural gas. LNG deliveries to Europe doubled from a year ago to 24 billion cubic feet per day in early February, now accounting for more than 40% of supply – and most of it coming from United States.
Without US LNG, Europeans could well freeze to death amid energy shortages so severe that the price of gas has recently been $30 per mmBtu, six times the US price and the energy equivalent of paying a bleeding nose of $180 a barrel of oil. Industrial users closed factories and laid off workers.
“Russia has been particularly useless in dealing with the panic that has engulfed the market,” writes CSIS analyst Nikos Tsafos. No wonder, since Russia created the problem.
How bad could it get if war breaks out in Ukraine? Analysts say Europe could bear the closure of pipelines crossing Ukraine with Russian gas. Ukraine was once the main route for transporting Russian gas to Europe, but since 1998 these volumes have fallen by 70%, only to be redirected to new lines with names such as Bluestream and Turkstream. The Nordstream gas pipeline, which avoids Ukraine having to deliver gas to Germany, is completed but not yet started. It is now a political football that could become a white elephant.
Putin is unlikely to cut off gas to Europe entirely (he makes too much money), and European leaders would be foolish to block supplies – because even if all global LNG shipments were redirected to European ports, there is not enough regasification capacity to take it.
This means that Europe must use all its options, from old coal-fired power stations, nuclear power stations and mothballed gas fields like Groningen in the Netherlands.
So who is making money from Europe’s forced LNG party? Anyone with so-called “spot” shipments. Most LNG cargoes are sold under long-term contracts, destined for specific plants. But trading houses buy opportunistically; Glencore has a contract with Cheniere Energy, the largest US LNG producer, for 800,000 tons per year for 13 years, while rival Trafigura has a commercial joint venture with Freeport LNG. Traders today can make a profit of $60 million selling a single cargo of gas in Europe and capturing the arbitrage between $4/mmBtu of gas on the US Gulf Coast and $30 of gas in Europe .
Sure, Cheniere, the world’s second-largest LNG producer, generates huge amounts of cash – $6.3 billion in EBITDA expected this year – but its economy is mostly locked into long-term contracts, with only About 10% of its production available for spot trading.
Cheniere, which has invested $40 billion over the past decade in its Gulf Coast liquefaction plants, announced this week Bechtel’s completion of its sixth so-called “train” at its Sabine Pass in Louisiana. , two months before the scheduled date and on time. the $2.5 billion budget.
Cheniere has led the U.S. framework of LNG start-ups from zero exports six years ago to 11 billion cubic feet per day now. The pandemic has slowed that growth, with just 1 billion cubic feet per day of additional LNG production on the way by 2024, according to consultancy Enverus. This means less “free gas” to Europe, but more left over for domestic consumption, ensuring that Americans won’t have to worry about expensive natural gas for many years to come.