The United States, the world’s top natural gas producer, is in talks with major energy-producing countries and companies over a potential diversion of liquefied natural gas (LNG) to Europe if Russia invades Ukraine, senior Biden administration officials said on Tuesday, January 25.
There is not enough LNG to substitute for a large disruption in supply from Russia, the primary exporter to Europe via pipeline.
Is it possible to find more supply?
It would be difficult because the world’s largest LNG exporters are already producing as much as they can of the gas that is super-cooled into a liquid form for transportation. Such an effort would have to involve rerouting vessels already on the water or ready for departure.
Several companies contacted by Reuters did not comment or did not respond to requests for comment on potential talks. In the past, when prices in one part of the world surged, LNG buyers have rerouted any cargoes that they could, as they did in December when LNG benchmarks rose dramatically in Europe and Asia.
However, buyers typically only have discretion to reroute a small number of cargoes as most are to supply gas to power plants and industry on long-term contracts.
A White House official said the Biden administration is trying to identify additional volumes of non-Russian natural gas from various areas of the world.
Russia exports roughly 23.3 billion cubic feet per day of natural gas, of which about 72% goes to the largest European economies. The entire worldwide LNG market is expected to be roughly 53 bcfd in 2022.
Who buys LNG?
LNG is sold worldwide to companies operating in countries generally looking to diversify energy sources away from coal. China, Japan, and South Korea were the three largest importers of US LNG in 2020, according to US Energy Information Administration (EIA) figures.
Global LNG exports are expected to rise to around 53.3 bcfd in 2022. That is still a fraction of overall worldwide natural gas consumption of roughly 400 bcfd, most delivered via pipelines.
If prices jump in one part of the world, like what happened in Europe in December, LNG buyers can easily send spot cargoes to the area, and in some cases can divert long-term deals if contracts with customers allow for such diversions.
Why can’t the US and other exporters just send more gas?
Exporting gas on vessels is not as easy as filling a tanker with crude oil. Building new gas liquefaction facilities generally takes two to four years.
There is only one facility under construction in the United States that could add more liquefaction capacity this year – Venture Global LNG’s Calcasieu Pass in Louisiana, which analysts expect could add about 0.9 bcfd by year-end.
The three biggest producers of LNG in 2021 were Australia at around 10.5 bcfd, Qatar at 10.1 bcfd, and the United States at 9.8 bcfd, accounting for more than half of global supply. They are all exporting at or near capacity.
For 2022, the United States is expected to export an average of around 11.5 bcfd, about 12% of the country’s expected record gas production of over 96 bcfd, according to EIA projections.
What’s happened with prices?
Global prices are trading about seven times higher than the US gas benchmark, with European futures at more than $30 per million British thermal unit (mmBtu), compared with just $4 in the United States.
Asian futures are lately around $26 per mmBtu, after peaking at an all-time high near $49 per mmBtu last month.
In December, European futures hit record levels near $60 per mmBtu on Russian supply, resulting in LNG exporters redirecting cargoes towards Europe.
The United States sent about half of its LNG exports in December to Europe, up from 37% earlier in 2021, according to data from Refinitiv and the US energy department. – Rappler.com