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Top US gas exporter eyes Europe growth, ‘with the right contracts’

Cheniere, the leading exporter of liquefied natural gas (LNG) in the United States, is “willing to build incremental facilities” to satisfy growing European demand, it told EURACTIV

By: EBR - Posted: Tuesday, November 1, 2022

The US became the world’s largest exporter of liquefied natural gas (LNG) during the first half of 2022, filling part of the vacuum left by Russia, whose exports to Europe have plunged following its February invasion of Ukraine.
The US became the world’s largest exporter of liquefied natural gas (LNG) during the first half of 2022, filling part of the vacuum left by Russia, whose exports to Europe have plunged following its February invasion of Ukraine.

by Frederic Simon

Cheniere, the leading exporter of liquefied natural gas (LNG) in the United States, is “willing to build incremental facilities” to satisfy growing European demand, it told EURACTIV, warning however that additional capacity would not enter service before “the latter portion of this decade”.

The US became the world’s largest exporter of liquefied natural gas (LNG) during the first half of 2022, filling part of the vacuum left by Russia, whose exports to Europe have plunged following its February invasion of Ukraine.

Falling supplies from Russia have “really changed the flow dynamics” for gas in Europe, said Corey Grindal, executive vice-president in charge of worldwide trading at Cheniere.

So far this year, the US has supplied “just under 40 billion cubic meters” of gas to Europe, which is “almost half” the 80 bcm expected to come from Russia for the entire year, he said.

“So almost half has come from additional US LNG,” he told EURACTIV in an interview.

The speed at which the US was able to ramp up LNG deliveries has surpassed European expectations.

In March, just weeks after the Russian invasion of Ukraine, the US committed to supplying 15 bcm of LNG to EU markets this year, while the EU offered “stable demand for additional US LNG” of approximately 50 bcm per annum “until at least 2030”.

With 40 bcm already delivered, Grindal said US exports are likely to come “relatively close” to the 50 bcm mark already this year.

Now, Cheniere is looking to cement that position with new plans to bring additional liquified gas to Europe.

In June, the US company announced a final investment decision to expand its export capacity by an additional 10 million tonnes per year. And assuming gas prices in Europe remain high enough, “I think that you will continue to see US and worldwide LNG continue to make its way to Europe,” Grindal said.

New incremental capacity

But European customers will have to wait a few years for additional supplies to become available, Grindal warned, because the infrastructure needs time to build.

“When you look at the next 12 to 24 months, realistically, there is no new liquefaction capacity that is able to come online,” he said. “And that’s worldwide”.

The only countries that are capable of ramping up exports are the US and Qatar. However, these incremental supplies won’t enter service earlier than “the latter portion of this decade,” he cautioned.

“Unfortunately, that’s what the reality is. These are very expensive, very big facilities, it does take three to four years to build,” Grindal explained.

Cheniere’s June decision to expand gas liquefaction and export capacity by an additional 10mt/year was a big investment, he stressed.

“That facility costs $8 billion. So you can see the amount of capital that’s required, and why we’re looking for that long-term certainty from creditworthy counterparties to be able to support the building of these facilities,” he said.

European gas buyers have helped support Cheniere’s expansion, Grindal said, citing Norway’s Equinor and France’s Engie. But ultimately, he said, these expansion decisions can only be made if customers in Europe or elsewhere are in a position to sign up for long-term contracts that offer stable demand to suppliers.

“For the long term, we’re willing to expand – with the right contract support that justifies building these very large, expensive facilities,” Grindal emphasised.

The European Commission, however, is reluctant about long-term price contracts, saying they risk inhibiting free flows of gas in Europe. Instead, Brussels has encouraged spot trading that allows European customers to benefit from reduced prices when supplies are abundant.

In legislative proposals tabled in December last year, Brussels adopted a more open approach to long-term contracts though, saying they should not run beyond 2049 and avoid creating barriers for renewable and low-carbon gases.

Although Cheniere is following these discussions with interest, Grindal said it was ultimately up to Europeans to decide.

“There are some policies that we see are kind of up in the air that need to be decided in order for other companies or countries to be able to sign up for long-term contracts. But that’s not really a conversation with us,” he said.

Besides long-term contracts, EU regulators can also help by supporting the construction of additional LNG regasification capacity that is required for LNG ships to unload, he remarked.

“If you don’t have more regasification facilities, there won’t be any more LNG that’s able to enter the continent,” Grindal said. “Regardless of whether it’s from the US or anywhere else – that’s just the physics.”

Environmental concerns

But Europeans are also concerned about the environmental impact of rising LNG imports from the United States.

Food & Water Action Europe, an environmental NGO, published a new analysis last week (26 October) evaluating the climate impact for Europe of increasing US LNG imports to 50 bcm per year.

“Reaching this 50 bcm goal would create 400 million metric tons of CO2-equivalent annually, which is roughly equivalent to 100 coal plants,” the analysis found.

In addition to the pollution it will cause, rising LNG imports from the US will also be “incredibly expensive,” the NGO warned, saying the total bill at current prices by 2025 “could be over €64 billion”.

US gas is also produced almost entirely by fracking, a technology widely banned across the European Union over environmental concerns.

‘Carbon emission tag’ on LNG ships

EU regulators are aware of the climate risk posed by rising LNG imports. In December last year, the European Commission introduced new reporting obligations for companies operating in the EU, as well as a ban on routine flaring or venting of methane during extraction.

However, the EU executive left foreign gas producers off the hook, saying it will consider tougher measures to regulate methane emissions from imports in 2025, after enough data becomes available.

Cheniere says it supports the global methane pledge launched by the EU and the US last year, under which signatories committed to cut methane leaks by at least 30% by 2030 from 2020 levels.

In February last year, the company announced it would start putting a “carbon emission tag” on every LNG ship loaded at the company’s liquefaction facilities so that customers can quantify the carbon footprint of each cargo ship they buy.

Under that programme, every US gas producer working with Cheniere has to monitor, report and verify emissions from their well sites and pipelines on a yearly basis, Grindal explained.

The data is not yet fully accurate, he admitted however, saying some of that is “delayed” because “it’s estimated from 2018” figures.

But the company is working to improve this by deploying technology that will measure methane emissions from all drilling wells in the US where Cheniere buys its gas from.

“You’re talking about, 100 different well sites,” said Grindal, which is why the programme will take time to implement at full scale.

“We’re not there yet,” he admitted, saying Cheniere is in talks with technology providers and gas producers to try the technology and verify that it’s working accurately for use it in real-time.

“You have to start somewhere, right?”

*first published in: Euractiv.com

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