Is Europe gonna be a massive buyer of LNG?

[Simon Hauser + 5]

Trump touted yesterday that Europe is going to step up its LNG game and become a major buyer of US gas.

The capacity is going to be there soon (chart), but can the USA compete with Gazprom? How far can the costs for liquefaction and transportation fall to bring down overall costs?

Cheers,

Simon

Edited July 26, 2018 by Simon Hauser

[Tomasz + 1,608]

-Gazprom needs price around 4 $ per mmbtu  in Europe to be  profitable. Today in Europe are close to 8 $. US LNG long term imho need about 8 to 9 $ per mbbtu for that. So from economic point of viev its clear who has lower cost advantage.

[Jan van Eck + 7,558]

The problem for the Europeans is:  who is going to be the reliable supplier?  Russia?  Not quite:  Russia (Putin) is quite prepared to use gas as a weapon of intimidation, and cutting off the gas in the dead of winter to gain advantages and intimidate the Germans is an old ploy.  OK, so how about the Americans?  No question the shippers out of Louisiana are going to be reliable.  And as Texas gas comes on-stream, the picture of supplier depth gets better.  Also there will soon be a new Atlantic Ocean terminal,  (Maryland?) to add liquefaction and shipping capacity.  So for the Europeans, the US is a safe bet.  

But it does not end there.  There is a huge supply of gas sitting in Qatar, a country that, although having some peculiar connections with Iran (much to the irritation of Saudi Arabia), is Western-oriented, and is host to  a large US military base.  Shipping gas from Qatar via Odessa, in the Ukraine, makes for a short boat trip, so lots of trips per boat per year.  You need that to move the gas.  And there is a lot of ship tonnage about to be launched, which will assure both supply and a lid on shipping costs.  With the risks and problems of Russian gas, I don't see that increasing market share any time soon. 

[Tomasz + 1,608]

So when Russia cut gas to Germany. Give me a detailed date please. Even during Cold War.

All supporters of LNG really dont like talking or mentioning  simple and small economic problem with LNG= its 30-40 % more expensive than russian gas. And I would like to talk about price because its most important factor  in details.. 

Europe even now can import 160 bilions m3 of LNG and imported 47 bilions last year and even less in 2015 and 2016 - its less than 30 % of maximum capacity.

So lets talk what is the biggest problem with LNG and come back to economic reality thats simply a very expensive gas. 

Edited July 26, 2018 by Tomasz

[Marina Schwarz + 1,576]

I love the "Gas as a weapon" adage but this "weapon" has never been unsheathed. Yes, Gazprom did stop gas flows to Ukraine on a couple of occasions but maybe, just maybe, it could have been because the Ukrainians were not paying for the gas they were getting. Let's try to remember the truth that there are always two sides to a story and Ukraine, for all its loudness, is not exactly an exemplary anything, let alone a trade partner.

@Tomasz, Poland is very eager to replace Russian gas with LNG, I hear. Is it really as eager as it sounds in the media?

Word from the experts: 

But exporting LNG is an expensive business and likely will not be a big part of European energy anytime soon, experts said Thursday.

"What counts for the European consumer is the price," said Thierry Bros, a researcher at the Oxford Institute for Energy Studies, who noted the lofty costs of US LNG.

After Europe liberalized its energy markets, "the price is set between buyers and sellers at the exchange in Holland," he added."

"I don't see how the US can force European clients to buy US liquefied natural gas that is more expensive," said Matt Smith, analyst at ClipperData."

Edited July 27, 2018 by Marina Schwarz

[Guillaume Albasini + 851]

The rise in US  LNG imports in Italy will not last. By 2020 the completion of the Trans-Adriatic Pipeline will allow to import cheaper gas from Azerbaidjan.

[Bill Simpson + 7]

Russian pipeline gas will always be cheaper than US LNG, so no, the EU might buy some LNG from the US, but not vast quantities of it. The Europeans would be wise to build enough receiving terminals so as to prevent Russian domination using the threat to cut off their gas as a weapon. It is unlikely, but better safe than sorry. 

[JunoTen + 118]

The Europeans will quickly move to renewables just like China and India, and they will simply cut their dependence towards Russia, Qatar, and all those menacing countries.

[Tomasz + 1,608]

Marina, polish politicians has never been really  very good in realtipolitcs and pragmatism. Thats why we were partitioned 4 times in last 300 years and despite hard-working population Poland is still one of the poorest countries in European Union= malignant polish people often called our country China or even Bangladesh of Europe because of hard work and 3-6 times lower hourly rate than France or Germany for similar job in assembly plants=  average 6-7  euros before taxes per hour. Medium wage in Poland its about 550-650 euros after taxes.

Its called good gdp growth  thanks to low labour costs. In result we now have populists in power.

Why I think so

We are for example between Western Europe and Russia\China  so in perfect place to make a really huge amount of easy money from polish perspective thanks to very good location on the trade route. We could have been also a  broker in trade between EC and CIS countries but unfortunately its not possible. Only on Jamal I and Jamal 2 we could earn at least 3-4 bilions $ per year = its comparable with 1% of polish gdp.

Instead for years we had relatively the biggest trade deficit with Russia in the world of high commodity prices environment= thats really an archievement when you have good location from economic point of view between Russia and Germany= maybe not from historical perspective but you could really earn decent money on that ......

Read this very good article from polish magazine Polityka sorry for google translator

 https://www.polityka.pl/tygodnikpolityka/rynek/1741922,2,jonathan-stern-o-polskich-problemach-z-gazem.read

Quote

 

Jonathan Stern on Polish gas problems
The dispute about the pipe
Interview with gas energy expert Jonathan Stern from Oxford Institute for Energy Studies about how the project of independence from Russian gas will affect Poland's energy and economic security.
1 article out of 10 available
Expert of gas energy Jonathan Stern

Expert of gas energy Jonathan Stern

Marta Koblańska: - Is there a chance to stop the construction of Nord Stream II planned by Gazprom?
Jonathan Stern: - In my opinion it is too late. Construction may be delayed mainly due to Denmark, not Poland. People in Western Europe have a completely different perception of gas supply security. For many companies that are Gazprom customers, Ukraine is a big problem. We have been facing political and security problems between Russia and Ukraine for many years and these countries will probably never have good relations. For this reason, many European countries do not want most of the gas they buy going through Ukraine. They would prefer that gas be directly supplied to their countries or pass through other countries of the European Union.

Maybe then the European Commission will find a remedy for this? Or at least impose on Nord Stream II the obligation to comply with European law.
I doubt Germany will agree, because stopping Nord Stream II would be a purely political decision, not a regulatory one. This would also be a big problem for legitimizing possible European regulations in this matter. We have spent 30 years trying to combine the EU energy packages and suddenly a new regulation regarding the submarine gas pipeline from third countries suddenly appears. For what purpose? In order to stop or delay the construction of Nord Stream II?

Energy regulations are not intended to serve political purposes, but are to organize and supervise the market. The legal services of the Commission have published a very long document saying that there are no grounds to impose the provisions of the third energy package on Nord Stream II. If Poland wants to create a basis for it, then it may try to do it, but it will be a problem. It would be much better for anyone who does not like Russian gas, just say it. We will understand when Poland simply says: "we do not like Russian gas, we think it is a threat to Europe," and then let us develop our own view.

The Polish government often repeats that it does not like Russian gas. In order to become independent of it, we have built a terminal in Świnoujście, through which we import liquefied gas. PGNiG signed a contract for the import of American LNG. Does this gas have a chance to become competitive against Russian gas?
No way. Typically, the price of US gas is set in the Henry hub [a large gas pipeline in Louisiana, where gas pipelines of many operators meet, and commercial settlements occur between them; these prices are the reference point for the entire US gas market - ed.]. At the Henry hub, gas prices are much lower than the prices you pay for Russian gas in Europe. It should be remembered, however, that the American gas price does not include the cost of transport in the United States and the margin, as well as the costs of liquefaction and transport by the ocean and regasification.

How much can the price of US gas be higher than that of Russian gas?
It depends on what levels American sellers are able to accept in Europe. It should be remembered that there are other markets outside Europe. If prices in Asia are higher, as in January 2018, LNG will go there first. The key issue for Poland and every recipient of the American LNG is therefore in the question - is he willing to pay more for gas from outside Russia? If Russian gas does not guarantee safety, American gas is the obvious choice. However, many countries respond - no. And they choose cheaper gas.

Can Poland make American gas competitive? After all, as many experts say, Russian gas for our country is more expensive than the one exported to Western European countries.
For decades, gas prices have been determined based on oil prices. In the last 8 years it has changed. All the most important markets of European Union countries are fully competitive, also on the side of recipients. Many countries of Central and Eastern Europe do not have competitive markets, because they are dominated by a player belonging to the state, as in Poland. In this situation, you can not think about competitive gas prices. You have to let many sellers and buyers, not only the functioning of the parent company.

n Poland, the doctrine today is that a competitive market is a threat to the energy security of the country.
If Poland decides that it does not want to buy Russian gas, because this situation violates national security, then this is a perfectly understandable decision. But then it is difficult to count on competitive gas prices. Poland will simply get a price that can be achieved by non-Russian sellers. It will most probably (although of course nothing should be prejudged) higher than the price of Russian gas.

As long as the Polish government wants to have a state-owned, centralized, old-fashioned, completely controlled market, everyone will pay more for gas. This approach can be defined as "security", but for me it is extremely expensive security. And this decision will mean that Poles can pay more for gas coming from other directions than Russia. The country can also spend tens of billions of euros on new infrastructure. But I do not believe that it will be fully used.

What cheap gas means for the economy?
It is like every primitive good. If you do not buy it at the lowest possible price, you risk that the industry, people, whoever uses gas - everyone will pay more than competitors.

What is the threat of high prices?
You have to pay more, so the manufactured products are less competitive and the inhabitants of such a country become poorer. And that's the problem. But the key issue is the concept of a competitive market: if German or French companies are asked for gas, they do not care if the price is high or low if their competitors pay the same price. The problem arises when others pay less.

Many countries buy LNG gas. Does the development of this market give hope for lower prices?
The price depends on two factors: the contract signed with the supplier and the spot price of the day. In American contracts, such as in this contract with Cheniere [from her last year PGNiG bought LNG - ed.], It is usually noted that the condensation fee is always valid, regardless of whether the buyer decides to continue shipping gas and actually uses this service. If he decides to continue transport, he still pays its costs plus a margin, and the delivery is canceled at the American label, the rest being with the buyer.

Can you deal with these problems?
The way to deal is to buy LNG only when it is cheaper. And when it is more expensive, you buy another gas, also Russian. But in my opinion, the Polish government is obsessed that Russian gas is a threat. So I answer: OK, let Poland not buy Russian gas, but do not let it complain that it pays more for gas than others in Europe. Governments deciding to stop buying Russian gas must be aware that their countries may lose their economies.

If Poland buys gas from many directions, can it gain a better negotiating position with Russia?
In the past, the only way to buy gas was long-term, 25-year contracts and lots of time to negotiate them. Now everything comes down to the question of where the cheapest gas is located? Is it Russia, Norway or is it LNG? If you do not think in this way, you will not get a competitive price. Gas purchase is a specific choice between a competitive market and daily prices, which can be high or low - and a market dominated by a single state-owned player with long-term contracts that determine what the price will be.

Poland, however, maintains that it is open to spot deliveries of Russian gas. Will this be the beginning of a competitive market?
This will be a competition, though controlled by the dominant player. At that time, Poland may face the problem that if Russian gas turns out to be cheaper, it may still remain dominated by the Russian supplier, which means that it will not be able to sign long-term contracts for LNG from the US or Qatar without being able to collect these supplies. Therefore, Poland must answer: is it interested in cheaper gas or gas from sources other than Russia?

How do you assess the Polish plan for gas supply diversification through the construction of a gas pipeline connecting Poland and Denmark, which will be transported by Norwegian gas?
I do not understand this. Denmark is in the phase of getting rid of gas from its energy balance. So, when Danish production is over, demand will end. Thus, I do not understand why Denmark is participating in this project because this country will not have a gas market. Secondly, this is a project that comes back, has been proposed at least three or four times in the last 20 years and has never been considered economically justified. Thirdly, I assume that somebody asked the Norwegians if they have 10 billion cubic meters. gas to force it into this gas pipeline? Investment is another issue, and according to my estimates, EUR 5 billion is needed to build this gas pipeline. It will be great when someone really wants

In my opinion, when people in Europe hear what the Poles say about gas security in the context of Russian gas, there is a suspicion that much of this comes from Mr. Kaczyński, and we know what he thinks about the Russians. What advice would you have for the Polish government? If the Polish government wanted my advice, I could talk about two issues that I heard at the Flame conference (the largest gas conference in Europe). During a trade session, an exceptionally well-known trader said: "As far as the gas market is concerned, Poland is a failed country ... we have been trying to obtain a commercial license in Poland for two years and this is impossible". Then the presentation of the Polish Gaz-System company took place. A very nice man spoke about Baltic Pipe, interconnectors of all kinds, expansion of the LNG terminal. Someone then stood up and asked: "Instead of spending tens of billions of euros, building this entire infrastructure, why do not you open your market to competition? Then you will get a cheaper gas. "

And very good summary from russian agency Tass = a important informations in my opinion were bolded

 

Quote

 

MOSCOW, July 27. /TASS/. Pledges by US President Donald Trump to boost supplies of liquefied natural gas (LNG) to Europe can come to fruition. Exports of American LNG to Europe are on track to quintupling and even soaring ten-fold in the coming years, according to experts interviewed by TASS.

However, in order for US gas to compete with its Russian rival, analysts recommend the crude oil price must remain at the current high level. Moreover, they predict that China is going to consume the bulk of American gas.

American dream

The European Union (EU) has agreed to step up LNG imports from the United States, Trump said earlier this week following his talks with European Commission President Jean-Claude Juncker, who confirmed the plans and announced the EU’s intention to build more terminals for this purpose. In 2017, the US supplied 3 bln cubic meters of gas to Europe, which is considered to be a small portion, considering that Europe’s total consumption reached around 500 bln cubic meters last year. The US is going to deliver another 8.4 bln cubic meters by 2020 pursuant to long-term contracts (there are four of them in total).

 

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"For the US, the European market is more attractive than Asia’s since its exporters stand to gain because of lower logistics expenses with minimal price differential with the Asia-Pacific Region," Vygon Consulting’s Yekaterina Kolbikova explains. According to her calculations, US exports of LNG to Europe can climb to 15 bln cubic meters by 2020 and to 25 bln by 2030 if the share of supplies remains unchanged.

 

Alexander Sobko, an analyst at the Energy Center of the Skolkovo Business School, holds a similar point of view. "If the sides agree on the price issue, the European market can get 10-30 bln cubic meters of American LNG in the future, which will be a compromise of sorts. The US keeps out of the construction of Nord Stream 2, while receiving a small extra market for its LNG," he pointed out.

Amid current high oil prices the American LNG can already compete with its Russian rival in terms of the price (the gas price is pegged to oil futures - TASS), Sobko said. Meanwhile, if crude prices backtrack Russian gas will follow dropping in price. In order to compete with Russian gas down the road, the Americans need to cut the price of their projects at the production and liquefaction stages by another 10-15%, he noted.

Expert at the Analytical Credit Rating Agency (ACRA) Vasily Tanurkov agrees that the supplies of American gas to Europe can surge, adding though that the European market is not going to become the core one for the United States. "The point here is not that Russian gas is cheaper, but rather LNG prices in Asia are way higher. That said, the bulk of American LNG will be consumed by China, while the demand for gas there is going to surge by leaps and bounds in coming years," he said.

No threat in place

The increase of US supplies poses no threat of squeezing Russian gas out of the market, experts promise.

 

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"Russia’s advantageous position on the gas cost curve in Europe will enable it to boost its market share further if the product is in demand politically," Kolbikova said. According to Vygon Consulting, the price of gas supplies from the Bovanenkovo field that is to be a resource base for the Nord Stream 2 project is $156 per 1,000 cubic meters. Meanwhile, the price of LNG exports from the United States totaled around $255 per 1,000 cubic meters in 2017 with the average gas price in Europe of $200 per 1,000 cubic meters.

According to Tanurkov, American LNG will most likely be intended to make up for gas shortfalls during times of peak demand, and be delivered to countries that do not receive pipeline gas from Russia, he said.

Traditionally, the top LNG buyers in Europe are Spain, Britain and France. "But the potential of LNG demand growth in those countries is rather limited when compared with the soaring demand in Asia, and US gas will compete with exports from Qatar and North Africa rather than with Russian pipeline gas," Tanurkov explained.

The capacity of European LNG terminals is currently estimated at 200 mln tonnes, although their loading does not exceed 27%, experts said. "Theoretically, Britain could buy more American LNG since it has free LNG capacities and requires gas imports, though what we see now is just the opposite. Even the American LNG that was purchased by the UK’s Centrica under a long-term contract to be supplied to the British Isles, has been partially resold," Sobko concluded.

More:
http://tass.com/economy/1015069

 

From last report of IEA - World Energy Outlook 2017. Its free if you register your email so I think I can show you this number without legal aspects

Total Export Russia  2015 188  2025 265 2040 314 USA  2015 -1 (import) 2025 120 2040 200 Gas price 2015 2025 2030 EUROPA 4.9 7.9 8.6 Usa 3 3.7 4.4 China 5.6 9.4 9.7 JAPAN 7 10,3b 10,5 IEA Assumption Crude Oil price 2025  83 $ 2030 94 $

Edited July 27, 2018 by Tomasz