Can Juncker keep his pledge to buy more US gas?
July 27, 2018
US President Donald Trump was characteristically hyperbolic this week after European Commission President Jean-Claude Juncker pledged the EU would build more terminals to import US liquefied natural gas (LNG). "They want very much to do that and we have plenty of it," Trump said.
True, the US has "plenty of it." But whether the EU really "very much wants to do that" is moot.
"Juncker's promise to import more LNG is of course not his promise to make," Tim Boersma, an energy expert at Columbia University, told DW following Wednesday's talks between the two leaders. "Just like the White House does not sell LNG, Brussels does not buy it. But there is a reasonable chance that the market can help Juncker out a little in the coming years."
An EU official present at the White House talks on Wednesday played down the significance of Juncker's promise, saying that the declaration says the EU "wants" to import more LNG. It doesn't say we are committing to import more. It is a "declaration of intention."
The EU currently imports 40 percent of the gas it consumes from Russia. The bloc has long played lip service to diversification of gas sources, but is currently at the latter stages of agreeing the Nord Stream pipeline extension deal with energy behemoth Gazprom that would effectively condemn the bloc to long-term dependence on Russia.
Furthermore, stripping away the free trade spin from this week's meeting, energy experts note that the US State Department has a long history of voicing concerns over European dependence on Russian natural gas and promoting US gas exports.
Trump, meanwhile, has been vocal in his support of US energy companies seeking new markets for the huge gas surplus the fracking revolution has created in the US. And the Trump administration has also imposed sanctions on European corporations working with Russia. The targeted companies — ENGIE, OMV, Royal Dutch Shell, Uniper and Wintershall — have agreed to lend Gazprom $950 million (€815 million) for construction of Nord Stream II.
"The US has also gone to lengths to stress that these concerns are not related to US LNG exports, but this narrative has been called into question in parts of Europe, including Germany and Russia. This is chiefly based on statements from former Secretary of State Rex Tillerson, and also the president, who have explicitly linked concerns over Nord Stream II with the possibility to buy more US LNG instead," said Boersma.
US Energy Secretary Rick Perry said earlier this year that moving US energy supplies into Eastern Europe was one way of containing Russian influence in the region.
Read more: Nordstream II gas pipeline in deep water
So, what are chances of upping US gas exports to the EU?
Price: For starters, US LNG is at a cost disadvantage to Russian pipeline-supplied gas, despite the huge falls in US prices.
Hard as it may be to believe, there were no LNG export terminals in the US at all before 2016. But mainly due to the shale gas revolution in the US, the price of natural gas at the Henry Hub — the name given to the pricing point for natural gas futures contracts traded on the New York Mercantile Exchange — fell 70 percent from 2008 to 2017 as the US became a net natural gas exporter.
But even this may not be enough to compete with Russian gas.
Using a Henry Hub gas price of $2.85 (€2.30)/MMBtu (million British thermal units) as a benchmark, after processing and transportation cost inputs are factored in, the price of US-sourced LNG in Europe would reach $6/MMBtu or higher, while Russian gas sells for around $5/MMBtu on European markets.
This could of course change if the US is able to cement its position as a global gas exporter, but Gazprom has lowered its prices in recent years to protect its market share against Qatari encroachment on its EU markets and could do so again.
"For the Russian authorities, energy policy is part of their power strategy. Gazprom will thus be very cautious in terms of gas pricing and of contractual flexibility and will be more aggressive commercially in order to keep its customers," Francis Perrin, energy expert, and chairman of Energy Strategies and Policies (France) told Trend.
Volume: In terms of volume and volume capacity, the US produced 27 trillion cubic feet of natural gas in 2017 and, according to the US Energy Information Administration, is on track to produce 43 trillion cubic feet of natural gas by 2050. By comparison, Gazprom produced 16.6 trillion cubic feet of gas in 2017.
US LNG exports are set to quintuple by 2019 to 9.6 billion cubic feet per day (Bcf/d) or 3.5 trillion cubic feet per year with the US set to become the world's third-largest natural gas exporter by 2020, behind only Qatar and Australia.
The downward pressure on prices will depend on technical, commercial — and political — factors.
New capacity: By the end of the decade, the US is expected to have five major LNG export projects operational, becoming the third largest LNG exporter after Qatar and Australia.
Two LNG projects — Sabine Pass in Louisiana and Cove Point in Maryland — have come online since 2016, increasing US LNG export capacity to 3.6 Bcf/d. Four more projects are scheduled to come online in the next two years: Elba Island LNG in Georgia and Cameron LNG in Louisiana in 2018, then Freeport LNG and Corpus Christi LNG in Texas in 2019.
"I think the US may well increase LNG exports to the EU, as a result of the fact that more LNG liquefaction capacity is still planned to come to market in the near future, and those cargos will be searching for a home," Boersma said.
"The US is poised to be a gas exporting giant for decades," said Jack Belcher, executive vice president of HBW Resources. "What seemed impossible a few years ago is today true: The US is now competing with the Middle East in the global gas export market."
Read more: Berlin eyes options as US gas export drive takes on Russia's Gazprom
US LNG export capacity is expected to reach 9.6 Bcf/d by the end of 2019.
New gas sources: Alaska's government and the Alaska Gasline Development have an agreement with Chinese lenders and China Petrochemical, or Sinopec, to advance discussions on the LNG potential in Alaska.
Demand: More than half (53 percent) of US LNG exports in 2017 were shipped to three countries: Mexico, South Korea, and China. Mexico received the largest amount, at 20 percent of the 2017 total, South Korea 18 percent, while exports to China made up 15 percent. US LNG imports to Europe are poised to rise almost 20 percent by 2040 from 2016 levels, according to the International Energy Agency.
Higher EU demand: Meanwhile, European demand is rising as domestic production declines, so Europe is looking to step up gas imports. The EU's largest production field in the Netherlands is slated to shut down and France is moving toward shutting its nuclear plants.
NATO members Poland and Lithuania in particular have built LNG import terminals to offset reliance on Russian fuel.
Fred H. Hutchison, president and CEO of LNG Allies, an industry association working to maximize US exports of LNG, told Euractiv recently that Poland is likely to build a floating LNG terminal in Gdansk. Poland is also the principal LNG access point for Slovakia.
Germany, meanwhile, announced this year plans to build a $500 million (€420 million) LNG terminal on the Elbe river in the north of the country able to import 5 billion cubic meters per year, or about 10 percent of Russia's current annual deliveries to Germany.
The terminal would be within reach of Scandinavian markets and the Baltic states via the Kiel Canal.
Lithuania now has an LNG import terminal and Croatia will build its own terminal, which could come on stream in 2019, although US LNG exporters are reportedly not yet interested in moving into Croatia, as discussions on a terminal on the Adriatic coast remain protracted.
Bulgaria is also looking to tie itself to the Turkstream pipeline linking Russian and and Azerbaijani gas imports coming into southeastern Europe.
Hutchison noted that Europe is the geographically closest market to the US and also that several terminals throughout Europe are currently underutilized.
"The two sources can be complementary and the more diversification the better," Kirsten Westphal, senior associate at the German Institute for International and Security Affairs, told DW. "Cheap Russian gas could be used for the baseload and spikes and peaks could be managed using US LNG."