Prof. ST Hsieh
Director, US-China Energy Industry Forum
February 18, 2022
War is fair, there are losers but there are also winners. We are not against business. But the Ukraine crisis has already caused havoc for the people in the war zone. VIP politicians have worked overtime and put their reputations on the block. The issue of concern is when these politicians will be able to resolve their differences and end the crisis so human sufferings could end timely. As of now, the real downside is a terrible war could still breakout anytime and then all the hell break loose.
Should we take comfort that some businesses are thriving during the crisis?
WSJ: Europe’s Energy Crisis Pays Off for U.S. Natural-Gas Sellers, Global Traders
Dash to sell gas to Europe at high prices made the U.S. the biggest LNG exporter for the first time
By Benoit Faucon, Collin Eaton and Joe Wallace
Updated Feb. 17, 2022 6:14 pm ET
U.S. natural-gas producers and global commodity traders are emerging as some of the biggest beneficiaries of the surging energy prices spreading pain in Europe.
Falling supplies from Russia to Europe, as well as the threat of a Russian invasion of Ukraine, have elevated prices of the coveted fuel used to heat homes and generate electricity. The rally has burned European utilities including Électricité de France SA and Germany’s Uniper SE and put dozens of British energy suppliers out of business. It is also leading to substantially higher bills for consumers, creating headaches for governments across the continent.
The price surge has been a boon for American suppliers of liquefied natural gas such as Cheniere Energy Inc. LNG 0.86% and Cameron LNG, which are supplying record amounts of the fuel to starved European markets. Also cashing in are traders who shipped the gas to Europe at historically high prices, and money managers profiting from volatility in global gas markets.
Benchmark European gas futures rose 6% Thursday to €74 a megawatt hour after Western governments said Moscow kept massing troops on the Ukrainian border, raising the prospect of a conflict that could interrupt energy exports to Europe.
Europe’s gas crisis began to unfold in the fall and led prices to record highs on Dec. 21 of more than €180 a megawatt-hour, equivalent to $205. Vessels carrying American LNG to markets around the world set a new course for Europe, and in December the U.S. surpassed Qatar on a weekly basis to become the biggest LNG exporter in the world for the first time. In the following month, the U.S. supplied almost half of the record 11.7 million metric tons of LNG delivered into Europe, according to market-intelligence firm Kpler.
The crisis has also led European companies to reconsider signing longer-term deals for American gas, U.S. executives say, something many had eschewed because the fuel was often more expensive than the competition. Such deals, if consummated, could lock in demand and help American companies secure the financing needed to build more gas-liquefaction terminals, raising U.S. LNG export capacity.
The standoff over Ukraine has helped propel the talks by exposing Europe’s dependence on Russia for a fuel Europe views as crucial to its efforts to reduce reliance on coal and cut carbon emissions while it builds renewable-energy sources to tackle climate change. The European Union’s top energy official, Kadri Simson, met LNG executives in Washington this month, and the bloc has spoken to countries including the U.S. about securing alternative deliveries if supplies from Russia face interruption.
“Russia doesn’t hesitate to use the significant energy supplies to Europe as a leverage for geopolitical gains,” said EU High Representative Josep Borrell after meeting U.S. Secretary of State Antony Blinken in Washington last week. “Our immediate priorities are to diversify the sources of energy, in particular the gas flows.”
American executives said some European officials have recognized a need to build facilities capable of receiving LNG and turning the supercooled fuel back into gas, so as to mitigate future price surges. They said that an EU proposal to classify certain gas investments as green will help more buyers to emerge.
“For the buyers in Europe to feel like there’s policy support and political support to do long-term contracts for gas, that’s very positive,” said Mike Sabel, chief executive of Venture Global LNG Inc.
Since mid-2021, Cheniere and Venture Global have struck LNG deals with more than half a dozen companies in China, Europe and elsewhere. A tanker is slated to depart soon with the first cargo of LNG produced at Venture Global’s newly operational facility in Louisiana.
LNG producers rely on traders to guide their supercooled gas around the world. As prices in Europe shot above those in other regions, these traders spotted an opportunity.
A cargo owned by Trafigura Group Pte. Ltd. was heading to China when Russia’s Gazprom PJSC cut its gas-transit capacity through Poland on Dec. 17, raising prices in the European market. The Swiss trader soon ordered the Hellas Diana, carrying LNG picked up from Cheniere in Texas, to leave the Pacific Ocean and cross the Panama Canal.
“Trafigura ordered us to go to the U.K.,” said a crew member. Four weeks later, the Malta-flagged vessel discharged its cargo in Wales, according to data from Kayrros, a market-intelligence firm. Trafigura declined to comment.
Earthquake Is Having a Big Impact on Gas Prices
In all, at least 11 LNG tankers sailing from the U.S. to Asia changed direction to Europe between Dec. 17 and Jan. 10, according to Kayrros. Six went to the U.K., while others went to Spain, Poland, France and the Netherlands. In addition, three vessels that held gas from Nigeria and Equatorial Guinea were diverted to Europe during that period, according to Kayrros and Kpler.
European energy companies with sizable trading arms also recorded blowout profits last year. TotalEnergies SE reported a nearly 11-fold jump in fourth-quarter earnings for its gas unit, and Chief Financial Officer Jean-Pierre Sbraire cited “outperformance in the gas and LNG trading business.” Shell SHEL -1.82% PLC said gas profits more than tripled for the last three months of 2021.
Volatility in energy markets, partly caused by disrupted supplies in Europe, led to bumper returns at a clutch of commodity-fund managers. E360 Power LLC, which focuses on electricity markets, gained 187% last year and 32% in January, said portfolio manager Mark Sickafoose. A broad commodities strategy run by Canada’s Auspice Capital Advisors, which underlies the Direxion Auspice COM ETF, returned 3.6% in January following a 28% gain in 2021, said Chief Investment Officer Tim Pickering.
Miami-based Statar Capital LLC, which manages about $2.3 billion, gained 3.5% in January and 56% in 2021, mainly trading U.S. gas, according to people familiar with the matter. Chief Investment Officer Ron Ozer said gas markets will grow more volatile. One reason: the closure of coal power plants means that utilities have less flexibility to fire up coal stations and dial down the use of gas when gas prices rise, keeping demand firm.
Dan Brouillette, a former U.S. energy secretary in the Trump administration, said the recent surge of American gas shipments into Europe and signs of interest in building new gas infrastructure mark a turnaround. Mr. Brouillette is now president of Sempra SRE 0.12% Infrastructure, a unit of Sempra that is one of the owners of the Cameron LNG export terminal in Louisiana. He said cargoes have flocked to Europe because U.S. contracts are typically more flexible than those of other large LNG producers.
“You can easily turn it around,” Mr. Brouillette said. “That’s why you’re seeing U.S. LNG provide such a large portion of the supply to Europe today.”