EU Inks LNG Deal With U.S. To Replace Russian GasBy Irina Slav - Mar 25, 2022, 9:00 AM CDT
The European Union and the United States have announced a deal for more U.S. liquefied natural gas exports to the EU as the latter seeks to replace Russian supplies, on which it is dependent.
According to the terms of the deal, the United States will deliver at least 15 billion cubic meters of liquefied natural gas to the EU this year more than previously planned, the White House said in a fact sheet. For context, Russia exported over 59 billion cubic meters of natural gas to Germany alone last year, a record high.
"The European Commission will work with EU Member States toward the goal of ensuring, until at least 2030, demand for approximately 50 bcm/year of additional U.S. LNG that is consistent with our shared net-zero goals. This also will be done on the understanding that prices should reflect long-term market fundamentals and stability of supply and demand," the fact sheet also said.
Meanwhile, U.S. LNG exports to the continent have increased drastically, with as much as 70 percent of them going to Europe in the past two months, up from a previous 30-percent share, according to Evercore ISI.
"The recently announced EU energy supply reconfiguration could be the largest change in European energy consumption since the end of the Second World War," said Evercore ISI analyst Sean Morgan earlier this week, as quoted by American Shipper.
According to other analysts, U.S. LNG producers cannot produce all the LNG Europe will need, so they will need to redirect cargo from other buyers to satisfy Europe's gas demand.
"We expect near-term measures to support European LNG imports to rely on the reallocation of existing supply," Goldman Sachs said in a recent report cited by Reuters, adding that "such a relocation to Europe is already happening." The reallocation was made possible by record-high gas prices in Europe, which have also made U.S. LNG competitive with pipeline gas.
Yet a lot of U.S. LNG is already contracted, one analyst noted, so European buyers will have to pay even higher prices.
"But almost all of it [LNG] in the U.S. already belongs to somebody. It is under contract," the head of business development at energy and shipbrokers Poten & Partners told Reuters. "If Europe wants more LNG, they are going to have to pay for it," Jason Feer said.
By Irina Slav for Oilprice.com