LNG Boom May End Billions in Closed Assets

A few years ago, the idea that the United States could become the world’s largest LNG exporter would have sounded fantastic. Just last year, it did: The US exported as much liquefied natural gas as Qatar in 2022, more than 81 billion cubic meters. And this year it will export more. But the boom may end sooner than many expect. Last year, much of the liquefied gas at Gulf of Mexico terminals went to Europe, which has been diverted from the path to a fossil-fuel-free future by the Ukraine war and its own reaction to the Russian invasion. caused a surprising reaction from Moscow in the form of low gas supplies.

Few expected that US LNG producers would be able to fill the gap left by Russian gas, especially since Freeport LNG went offline after the explosion and remained offline until the end of the year. Europe has been helped by mostly mild weather since the start of the heating season and ended 2022 with ample gas supplies.

This year is expected to be tougher for European countries, with Russian gas significantly lower than last year. Even with higher imports from the U.S., a supply gap could develop, which would likely push LNG prices higher and destroy more demand. And that could ultimately be the undoing of the latest U.S. LNG boom.

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The Institute for Energy Economics and Financial Analysis, an energy NGO, recently wrote part There are several important lessons to be learned from the LNG export boom, which could have significant implications for the future of the US LNG industry.

One of them was the role of the Biden administration in increasing exports. Second, despite all the LNG it buys from the US, Europe is still short of energy. A third lesson was that increasing U.S. LNG supply was possible without a large increase in production capacity.

Another lesson was that Europe’s comfortable level of LNG supply is at the expense of Asia. The last lesson IEEFA says it can draw from LNG export patterns is perhaps the most important: U.S. producers should not rely on long-term demand from Europe.

The European Union is also open about this issue. Virtually every EU and member state government official with a say in energy has committed to a transition scenario that sees the EU reducing its dependence on fossil fuels in the long term.

The past year has shown that there may be obstacles to a temporary increase in the use of fossil fuels – coal demand from the EU increased last year too – but this has not undermined the EU’s determination to continue reducing its dependence on oil and gas.

Many would argue that this reduction is physically impossible because the EU, like every region, needs reliable energy and wind and solar power cannot provide it. However, high LNG prices can do the trick and prevent large demand growth, or even lead to a drop in demand, as IEEFA projects.

Gavin Maguire of Reuters recently noted column US LNG imports to the EU have been “both a lifeline and a drain” for the bloc. On the one hand, he noted, these increased imports have ensured enough gas in storage for the winter. On the other hand, it emptied Europe’s pockets even more.

While last year prices were the last thing on the minds of European gas buyers, who were too busy just finding enough gas to fill their storage caves, this year prices may get more attention. Signals of this came last year when the EU’s 15 member states forced the Commission to come up with a proposal for a price cap on imported gas – which all exporters said was not the best idea in the world.

U.S. LNG exporters generated $35 billion in revenue in the first nine months of 2022, Reuters’ Maguire noted in his column. It was 8.3 billion dollars compared to the nine-month period at the beginning of the year. Most of this is essentially Europe’s LNG import bill, and it comes with a host of other bills for national governments struggling to keep a lid on energy prices for businesses and households.

In the short term, the US will remain Europe’s largest LNG supplier. US companies will continue to build new LNG export terminals amid buoyant demand for the commodity, including in Asia.

But for Europe’s benefit, LNG-starved Asian countries will seek alternatives — any alternatives — while Europe itself doubles down on its renewable energy plans, realizing it’s simply traded one gas dependency for another.

In the long term, increased US LNG export capacity could become stranded assets if Europe’s renewable energy dream, based on the fundamental realities of critical metal supplies, fails to materialize.

By Irina Slav for Oilprice.com

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