Could More LNG Supplies Get to Europe in the Event of a Crisis?

(Reuters) — The United States, the world's top natural gas producer, is in talks with major energy-producing countries and companies over a potential diversion of liquefied natural gas (LNG) to Europe if Russia invades Ukraine, senior Biden administration officials said on Tuesday.

Gas prices in Europe and Asia were already far higher than in the United States due to tight supply and high demand, before recent fears of conflict hitting the flow from Russia, the world's second biggest gas producer and Europe's main supplier.

However, getting additional LNG cargoes to Europe swiftly will not be easy, as the world's suppliers are already producing as much as they can of the gas that is super-cooled into a liquid form for transportation.

Such an effort would have to involve rerouting vessels already on the water or ready for departure.

WHO BUYS LNG?

LNG is sold worldwide to companies operating in countries generally looking to diversify energy sources away from coal. China, Japan and South Korea were the three largest importers of U.S. LNG in 2020, according to U.S. Energy Information Administration (EIA) figures.

Global LNG exports are expected to rise to around 53.3 billion cubic feet per day (bcfd) in 2022. That is still a fraction of overall worldwide natural gas consumption of roughly 400 Bcfd, most of which is delivered via pipelines.

If prices jump in one part of the world, like what happened in Europe in December, LNG buyers can easily send spot cargoes to the area, and in some cases can divert long-term deals, so long as the contracts with their customers allow for such a diversion.

WHY CAN'T THE U.S AND OTHER EXPORTERS JUST SEND MORE GAS?

Exporting gas on vessels is not as easy as filling a tanker with crude oil. Gas liquefaction facilities, as they are called, generally take two to four years to build.

There is only one facility under construction in the United States that could add more liquefaction capacity this year - Venture Global LNG's Calcasieu Pass in Louisiana, which analysts expect could add about 0.9 Bcfd by year-end.

The three biggest producers of LNG in 2021 were Australia at around 10.5 Bcfd, Qatar at 10.1 Bcfd and the United States at 9.8 Bcfd, accounting for more than half of the world's supply. They are all exporting at or near capacity.

For 2022, the United States, is expected to export an average of around 11.5 Bcfd, which is about 12% of the country's expected record gas production of over 96 Bcfd, according to EIA projections.

WHAT'S HAPPENED WITH PRICES?

Global prices are trading about seven times higher than the U.S. gas benchmark, with European futures at more than $30 per million British thermal unit (MMBtu), compared with just $4 in the United States.

Asian futures are lately around $26 per MMBtu, after peaking at an all-time high near $49 per MMBtu last month.

In December, European futures hit record levels near $60 per MMBtu on Russian supply, resulting in LNG exporters redirecting cargoes towards Europe.

The United States sent about half of its LNG exports in December to Europe, up from 37% earlier in 2021, according to data from Refinitiv and the U.S. Energy Department.

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