Europe is in a rush for natural gas. The Russian invasion of Ukraine resulted in European-imposed sanctions on imported Russian gas. That left the continent scrambling to find a replacement. The most obvious replacement importer of liquified natural gas (LNG) was the US, and while US imports have risen (nearly doubling between March and June of this year compared to 2021), more is needed.
The US is home to immense natural gas reserves and the fracking boom intensified the supply. Construction of export terminals followed to eventually chill the gas into a liquified state and set it to export. Before the Ukraine invasion, Europe had received approximately 40% of its gas from Russia. The US has already gone on record indicating they cannot replace those volumes. In the LNG world, long-term contracts are the norm. US LNG exporters already have their buyers and spare LNG is scant. Some buyers, specifically in Asia, had been willing to sell their LNG imports to Europe for a nice profit, but now that winter is approaching even in the face of an economic windfall, they are also beginning to cut supply.
For the first half of 2022, US LNG exports averaged 11.2 billion cubic feet a day. This is 17% more than the first half of 2021. Australia and US were on track to export the most LNG in 2022 but a massive fire at a Texas LNG terminal slowed exports considerably. Yet, with the war in Ukraine showing few signs of letting up, analysts expect 2022 to be a banner year for US and Australian LNG.
S&P Global Commodity Insights is a provider of commodities and energy information. According to a recent study, demand for LNG at a global level is expected to reach 78 billion cubic feet per day by 2030. This would be a 60% increase from 2021. The global research and consultancy group, Wood Mackenzie, revealed a similar jump in future demand. Since March, six US firms have signed on to process 39.5 million tons of LNG per annum to be shipped out of future terminals. This is a consequential 74% increase from 2021 volumes.
LNG spot prices are understandably hitting new heights. Yet, long-term supply depends on infrastructure. The promises of a transition to renewable energy that most developed countries have pledged to mean a reduction in LNG. Stateside, LNG executives point to interstate pipelines in Appalachia. A region stretching from the southern tier of New York all the way south to northern Alabama and Georgia, Appalachia is home to the country’s most prolific natural gas field. The development of pipelines is critical in ramping up LNG exports, yet many LNG exporters are in a difficult position. To secure funding investors want to see pipelines (or permits for new ones) established with the corresponding permits. Federal officials, however, are reticent to grant permits unless LNG exporters can show they have already secured funding.
This “chicken and egg” scenario is not welcome news to Europe. On the environmental side, we’re now seeing developing nations like India and Pakistan switch back to burning coal because LNG is simply too expensive. These are problematic times for everyone.
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