Prof. ST Hsieh
Director, US-China Energy Industry Forum
July 25, 2022
The war in Ukraine has changed the global energy market system, it shifted from energy price based on balance of supply and demand to blatant politics. Unfortunately, many national politicians are not the best ones to make global energy policies. Specifically, when these politicians faced with any geopolitical crisis, the challenges of energy security are often overlooked. And it is always too late when the politicians recognize the energy crisis: more bad calls.
Energy security is a long-term issue of concern, it cannot be resolved by short political announcements. EU’s sanctions on Russian energy right after the Ukraine war started now appears to be very short sighted and backfired badly.
EU certainly should not be dependent on Russian energy alone, but it did not happen overnight. So, EU’s independence from Russian energy will not happen overnight. The only rationale for EU’s severe sanctions against Russian energy was the hope that Putin would succumb to EU’s pressure and leave Ukraine alone immediately. But Putin called EU’s bluff by cutting down energy export to EU. Quickly, the table was turned against EU: an immediate energy crisis.
It is not only LNG but also crude oil and coal, prices are all going up. It already causes the global economy to be slowing down. It won’t help much accusing Putin is weaponizing energy against EU. It is a real war!
But it is really unfortunate that high energy cost hurts so many innocent people around the world who have nothing to do with the war in Ukraine. The case is also bad for Europeans because they all are already suffering higher energy cost, worse economy, and downgraded lifestyle: a cold and uncomfortable winter with no end in sight.
Infrastructure upgrade does take good planning, huge resources, and time But, most importantly is consistent and effective implementation. Fossil energy projects such as pipelines, LNG export and import terminals are also exposed to constant contests/reviews from environmentalists.
Currently the challenge faced by EU nations is Putin cutting down natural gas export via Nord Stream One Pipeline quoting “technical” issues. Of course, EU does not have buy Putin’s “excuse.” But there is Nord Stream Two pipeline which is brand new and ready to go, why EU is not making a request to Putin sending natural gas via Nord Stream Two?
US is the global leader for exporting LNG now. But it is not reasonable to expect US LNG exports fulfilling storages in EU. Hopefully, there is still a global energy (commercial) market that energy flow follows price rather than politics. If politicians keep their hands off the global energy market, there will be enough capital investments around the world to satisfy the needs at a reasonable cost.
Global Competition for LNG Intensifies on New Russia Supply Cut
Stephen Stapczynski Mon, July 25, 2022, 6:55 PM
(Bloomberg) — Russia’s latest move to cut natural gas supply to Europe is intensifying global competition for seaborne shipments of the fuel, threatening higher prices and shortages from Asia to South America.
Utilities in South Korea and Japan are accelerating plans to purchase more liquefied natural gas cargoes for winter out of fear that Europe will also hoard supply, according to traders with knowledge of the matter. Even some price-sensitive buyers in countries such as India and Thailand are looking to procure cargoes and avoid a shortage, traders said.
Russia’s Gazprom PJSC said it will reduce flows through the Nord Stream pipeline to Europe again this week, forcing the region’s buyers to find replacements like LNG. Spot prices of the super-chilled fuel, already trading at a seasonal high, are at risk of surging further as buyers in Europe and Asia move to outbid each other.
Traders estimate that North Asia spot LNG prices will rally to the mid-$40 per million British thermal units level on Tuesday, the highest since early March shortly after Russia invaded Ukraine. There is a shrinking pool of available LNG through this winter amid supply disruptions from export facilities in Australia to the US.
Natural gas is a key fuel for power generation and heating, and the price rally threatens higher inflation around the world. At this price level, buyers in some emerging nations — such as Pakistan, Bangladesh and Argentina — cannot afford spot cargoes of the fuel and are struggling with power shortages.
China — the world’s top LNG importer last year — has remained on the sidelines of the spot market due to virus restrictions curbing demand for the fuel. If China’s economic activity picks up, that could quickly change and result in fewer LNG cargoes for Europe, Samantha Dart, Goldman Sachs Group Inc.’s head of natural gas research, told Bloomberg Television last week.
The U.S. Becomes World’s Top LNG Exporter
Mon, July 25, 2022, 10:00 AM
High demand in Europe, high natural gas prices, and increased export capacity made the United States the world’s largest exporter of liquefied natural gas (LNG) in the first half of 2022, the U.S. Energy Information Administration said on Monday.
U.S. LNG exports rose by 12% in the first half of 2022 compared with the second half of 2021, and averaged 11.2 billion cubic feet per day (Bcf/d) between January and June 2022, the EIA said, citing data from CEDIGAZ.
Thus, the United States beat Australia and Qatar, the other two major LNG exporters.
Spot LNG prices in Europe and Asia have held much higher than historical norms since the last quarter of 2021, and reached record highs earlier this year after the Russian invasion of Ukraine. Europe is importing growing volumes of American LNG as it looks to replace as much Russian pipeline supply as possible. Moreover, U.S. LNG export capacity has expanded by 1.9 Bcf/d nominal (2.1 Bcf/d peak) since November 2021, according to EIA’s estimates.
The United States is shipping record volumes of LNG to Europe to help EU allies in their efforts to fill gas storage ahead of the winter amid growing uncertainty about Russian gas supply. For the first time ever, the European Union imported in June more LNG from the United States than gas via pipeline from Russia, as Moscow slashed supply to Europe in the middle of last month.
Most U.S. LNG exports went to the EU and the UK during the first five months of 2022, accounting for 71%, or 8.2 Bcf/d, of the total American LNG exports, the EIA said today.
U.S. LNG exports are set to decline in the second half of 2022 because of the outage at Freeport LNG, the EIA said in its latest Short-Term Energy Outlook (STEO) for July. U.S. LNG exports are forecast to average 10.5 Bcf/d in the second half of 2022, which is 14% less than the forecast in the June 2022 STEO. The EIA expects LNG exports will jump in 2023, averaging 12.7 Bcf/d on an annual basis, or 17% higher than in 2022.
By Tsvetana Paraskova for Oilprice.com
Can The U.S. LNG Industry Live Up To Expectations?
Mon, July 25, 2022, 3:00 PM
This year has seen a substantial increase in natural gas exports from the United States, with the bulk of the volumes going to Europe as the continent scrambles to replace Russian gas with alternatives from countries the EU has not sanctioned. Unfortunately for Europe, however, U.S. gas export capacity is not unlimited. In fact, the limits are already showing.
The Energy Information Administration said in its latest Short-Term Energy Outlook that U.S. liquefied natural gas exports during the first half of the year averaged 11.2 billion cubic feet daily, which compared with 9.5 billion cubic feet a year earlier. The agency added, however, that it expected LNG exports to fall during the second half after an outage at the Freeport LNG terminal sharply cut export capacity by close to a fifth.
This outage could not have come at a worse time for the European buyers of U.S. gas, who already have to deal with lower Russian volumes and the knowledge that there is not enough U.S. gas to fully replace the 40 percent of EU gas imports that come from Russia.
It is not just the Freeport outage, either. There are also other constraints for U.S. natural gas exports, and unlike the outage, these are rather more difficult to tackle.
A lot of U.S. gas exports are contracted under long-term deals with buyers outside Europe, the Wall Street Journal noted in a recent report on the industry. According to a Wood Mackenzie analyst that the report cited, some of the Asian long-term buyers of U.S. LNG have been willing to resell cargos to Europe at higher prices, but this is now about to end as everyone in the northern hemisphere begins preparing for winter peak demand.
This challenge can be overcome with more LNG export capacity, and indeed there are many plans for such capacity. The problem is that LNG export terminals cannot be built over a couple of months: the additional export capacity being approved right now will only go into operation in two years or later.
There is also another problem with more LNG export capacity: emission reduction commitments from banks and other financial institutions that would otherwise be the perfect partners of LNG exporters for their new capacity in an environment of steadily and strongly growing demand. The issue with this demand is that nobody knows if it will be there two or three decades from now, from the banks’ perspective.
From a realistic perspective, the demand for gas will be there because there is little chance that wind and solar will become baseload-providing sources of energy and that battery storage will become a lot more compact and massively cheaper to replace gas. The question will then be whether there would be enough U.S. gas to satisfy this demand.
Opinions on this differ. According to many if not most industry insiders, the United States has the reserves to supply the world with a lot of gas while keeping the supply of the domestic market stable, too. But some disagree.
“Almost everyone takes it for granted that US gas production will continue to grow strongly as we progress through this decade,” energy investors Leigh Goehring and Adam Rozencwajg wrote in a quarterly market commentary earlier this year.
“With production having nearly doubled in the last 10 years, few analysts bother to even consider underlying shale gas supply issues. But something else has happened that receives no comment – never before has production been concentrated in so few fields.”
The commentary noted that as much as 40 percent of U.S. natural gas production currently comes from just two shale plays—the Marcellus and the Haynesville shale—with another 12 percent coming from the Permian.
This is not the worst part, either. The worst part is that production may be close to peaking in at least one of these plays: Marcellus. Following that peak, it could begin declining in three years, according to Goehring and Rozencwajg.
In addition to such production forecasts, there is also a more widely shared concern about domestic gas prices in a higher export environment. And this, according to the Wall Street Journal, could create political trouble for the LNG industry, possibly of a similar kind as the current problems the oil industry is having with the Biden administration, that is accusing it of being responsible for the oil price rally.
The outlook for LNG demand, meanwhile, remains strongly bullish. S&P Global Commodity Insights has forecast that by 2030, global LNG demand will reach 78 billion cubic feet daily. Demand for U.S. LNG specifically is set to increase twofold by that year, according to S&P Global Commodity Insights.
With the demand there, the only two questions are whether the U.S. will be producing enough natural gas to cover it and whether there would be enough LNG export capacity to ship the gas abroad where it is needed.