Track shipments

Analysis: US LNG exports to Europe on track to exceed Biden’s promise

A model LNG carrier is seen in front of the American flag in this illustration taken May 19, 2022. REUTERS/Dado Ruvic/Illustration/

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July 26 (Reuters) – When U.S. President Joe Biden promised European leaders in March that he would help secure new supplies of liquefied natural gas to offset shortages caused by Russia’s invasion of Ukraine, his promise was was met with skepticism.

After all, the US LNG industry was already reaching its export limits and the global market is dominated by long-term contracts that can dictate the destination of exported gas for twenty years in a row.

It turns out, however, that Biden’s promise may have been far too modest.

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The United States is on track to exceed Biden’s March pledge of an additional 15 billion cubic meters of LNG for Europe this year, according to a Reuters analysis of export data compiled by Refinitiv, and to triple commitment. Read more

The top natural gas producer became the world’s largest LNG exporter in the first half of 2022, the US Energy Information Administration (EIA) announced on Monday. Read more

The increase is good news for a Biden administration that has sought to strengthen energy ties with Europe to combat Russian influence. But given the voracious global demand for natural gas, these European imports come at the expense of poorer countries like Pakistan and India, which could face energy deficits or be pressured into new deals with Russia.

Through June this year, the United States exported about 57 billion m3 of gas in the form of LNG, of which 39 billion m3, or 68%, to Europe, according to Refinitiv data. This compares with 34 billion m3, or 35%, of LNG exports shipped to Europe for the whole of 2021.

This means that the United States has already sent more gas to Europe in the first six months of 2022 than it did in the 12 months of 2021. If exports to Europe continue at the same rate during the second half of 2022, the total increase compared to 2021 would be around 45 bcm.

However, the pace of exports slowed in June after a fire shut down Freeport LNG, which provides about 20% of LNG processing in the United States. Full operations are not expected before the end of the year. Read more

Another challenge could be a well-above-average Atlantic hurricane season, analysts said. Read more

HIGHER PROFITS IN EUROPE

The unexpected change is happening because shippers are willing to pay contractual penalties for not delivering to countries like Pakistan and diverting shipments to Europe, where the high price covers costs and profits, analysts said. .

Analysts who earlier argued that Biden’s goal was unachievable now say the industry, dominated by companies like Cheniere Energy Inc (LNG.A) and TotalEnergies (TTEF.PA), has proven to be much more flexible than they had expected.

“It’s become a lot more flexible than most thought just three months ago. If you have to do things, things are moving,” said Henning Gloystein, director of energy and climate at Eurasia Group.

But it has led to a drop in US LNG imports to countries paying less. Belgium, for example, saw its US LNG imports increase by some 650% while Pakistan saw its US imports decrease by 72%, according to the data.

Benchmark gas prices in Europe have averaged $34.06 per million British thermal units (mmBtu) so far in 2022, compared to $29.99 in Asia and $6.12 in the United States. United.

That compares to 2021 average prices of $16.04 in Europe, $18.00 in Asia and $3.73 in the United States, according to the data.

“Cargoes are going to go where the market demands it,” said Ed Hirs, an energy economist at the University of Houston.

IT’S STILL NOT ENOUGH

The February invasion by Europe’s biggest gas supplier pushed already high energy prices to record highs and prompted the EU to commit to cutting Russian gas consumption by two-thirds this year by increasing imports from other countries and by stimulating renewable energies.

Despite the unexpected US surge, the EU is still in a precarious position heading into the high-use winter season as Russia continues to threaten to cut off gas supplies. Read more .

The EU has urged member states to reduce their gas consumption by 15% until March as an emergency measure. Read more

Biden and European Commission President Ursula von der Leyen also announced a plan to form a task force to reduce Europe’s dependence on Russian fossil fuels, including gas.

The Commission should ensure that the EU is able to receive around 50 bcm of additional US LNG until at least 2030, and the US is on track to exceed that number this year.

But, analysts say, the move of US shipments will not last as Asian and South American prices rise to attract more shipments and customers seek legal action to demand deliveries on contracts.

“The really stark, stark reality is that Europe is shutting out a lot of emerging markets. In the long term, that’s not sustainable and it’s already causing energy shortages in South Asia,” Gloystein said.

“Something has to give,” he added.

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Reporting by Jarrett Renshaw and Scott DiSavino; Timothy Gardner contributed to this article; Editing by Heather Timmons and Marguerita Choy

Our standards: The Thomson Reuters Trust Principles.