By using natural gas to put pressure on European countries, Vladimir Putin will finally have had the opposite effect: losing his first customers and making the US gas majors specializing in liquefied natural gas (LNG) deliveries happy. In the first 11 months of 2022, these jumped by 137% compared to the same period in 2021, according to data from Kpler, cited by the Reuters agency.
In volume, US LNG deliveries are expected to exceed 55 bcm in 2022, or two and a half times last year’s level, or an additional 34 bcm, well above the 15 bcm promised by Joe Biden, following Russia’s invasion of Ukraine on February 24 and the imposition of sanctions on Moscow by Western countries.
And if you take into account deliveries of American LNG to the UK and Turkey which are connected to EU countries via pipelines, the total volume could reach 75 bcm, up from 44 bcm in 2021. .
If the president of the United States, Joe Biden, had reassured the Europeans after the invasion of Ukraine by promising them an additional 15 billion m3, it is finally double that will have been delivered, the American gas companies primarily responding to the price pact multiplied by 10 on the wholesale market rather than strictly political considerations.
All European countries were scrambling to make sure their gas reserves were sufficiently filled before winter set in! A high cost that Germany has also complained of through the voice of its Economy Minister, Robert Habeck, speaking of prices “astronomical” and France, especially Emmanuel Macron, during his recent trip to the United States, because high gas prices make its industrial sector less competitive. But from Washington’s side, Europeans have been relegated to the classic law of supply and demand.
$35 billion raised in 9 months
For American LNG players, this is a really good deal. In the first 9 months of the year, the top seven LNG companies had earned $35 billion, compared with $8.3 billion in the same period in 2001, an increase of 322%, according to American Energy Information (EIA ).
This is the price to pay for emancipating oneself from the benevolence of the Kremlin. “The share of Russian gas which accounted for 55% of all European gas imports at the beginning of 2022 has been reduced to almost zero”observed at the beginning of the year Josep BorrelHigh Representative of the European Union for Foreign Affairs and Security Policy, as well as Vice-President of the European Commission.
In fact, finding an alternative to the high volume of Russian gas was far from obvious. The United States alone has supplied more than half of LNG imports from European Union countries, also delivering the additional 15 billion m3 promised by Joe Biden in mid-August. A boom which, in passing, allowed it to become the world’s leading exporter of LNG in the first half of the year, overtaking Australia and Qatar. The rest was delivered 15% by Qatar, 17% by four African countries and another 14% by Russia, according to EIA data.
However, this increase in American LNG deliveries occurred with capacity utilization of the seven LNG terminals at 87%, the same as in 2021. On the production capacity side, they had only increased by 1.9% since November 2021, when gas prices were already on the rise in the last quarter of 2021, well before the invasion of Ukraine.
A less tense situation
And it didn’t really impact because, due to an explosion, one of the Freeport LNG Texas terminals, which at the time accounted for 20% of US gas liquefaction capacity, had to be put on hold. Three-fifths of its production was destined for Europe. Without this incident, Freeport LNG estimates, exports to the Old Continent would probably have reached 80 billion m3.
Today the situation is less tense. Not only have inventories been adequately replenished, but they could remain elevated due to recent weeks mild temperatures well above their seasonal norms. A situation that is reflected in the prices divided by 5 from the peak at the end of August, on the Dutch gas trading platform TTF, the European benchmark, which drop to the lowest since November 2021.
It remains to be seen whether this return of prices to more usual levels will continue during 2023, which represents the true test of restocking for the winter 2023-2024 season. On the part of the United States, underlines the IEA, there will be no new LNG export capacity this year, for the first time since 2016.
Two new US infrastructure projects were approved in 2022 but will not be operational for a few years. Gas exporting companies measure the risk represented by a market surplus on the price of gas.
The US has the capacity to continue to maintain LNG delivery volumes to Europe this year as it did in 2022. There is no shortage of it, as the country’s proven reserves (i.e. exploitable under current technological conditions and prices) it rose 32% between 2020 and 2021, the EIA says.
Decline in consumption in Europe
All the more so since, at the same time, consumption in the EU decreased in one year by 25% in October and by 23% in November, a study by the Bruegel Institute. This is the result of the destruction of demand created by the closure of factories that lose their competitiveness due to high prices, in energy-intensive manufacturing sectors, such as aluminum processing.
On this side of the Atlantic, there are not many regasification terminal projects in the short term. Only Germany – which had none due to its heavy dependence on gas pipelines from Russia – built one in record time, in Wilhelmshaven. Managed by the Uniper company, it saw the arrival of December 3rd its first cargo, carrying 170,000m3 of LNG, loaded December 19 at Calcasieu Pass by gas company Venture Global.
However, experts believe that the existing infrastructure is sufficient, the network between EU countries allowing the necessary gas to be transported during periods of replenishment.
Above all, the war in Ukraine has radically changed the energy situation in the European Union and has convinced Brussels to make this crisis an accelerator of the energy transition which aims in particular to do without Russian hydrocarbons. This is the meaning of the REPowerEU plan, which aims to invest more in the production of electricity from renewable energies (solar and wind), nuclear or even hydrogen than in infrastructure dedicated to hydrocarbons.
“With our France 2030 plan, we will continue to invest, innovate and implement ecology on an industrial scale. And after the law aimed at accelerating the spread of renewable energies, the nuclear law will mark the start of the construction of new plants in our area”Emmanuel Macron also recalled, during his greetings to the nation on December 31st.
Focus on the alternatives
These alternatives, according to a research note from the Bruegel Institute, make it possible to reduce the European Union’s demand for gas. by 41% by 2030 according to one of the scenarios of the REPowerEU plan leading to gas overcapacity in Europe. In that case, the Ukrainian conflict will have led the Old Continent to free itself from Russian gas, and in a few years… from American LNG.
