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Tsvetana Paraskova QUOTE:  “The new world energy order in which geopolitics trump market signals will likely accelerate the momentum for additional U.S. LNG export capacity as buyers in Europe are turning to the U.S. and Qatar for gas supply to replace Russian energy.”

The Future Is Bright For U.S. Natural Gas Producers

By Tsvetana Paraskova - Jun 09, 2022, 6:00 PM CDT

  • Russia’s invasion of Ukraine has changed the state of the global natural gas market forever.
  • For U.S. natural gas producers, Europe’s desire to wean itself off natural gas has significantly improved the long-term outlook of LNG exports.
  • The U.S. is set to account for 57% of new LNG liquefaction capacity expected to come online globally between 2022 and 2026.

As global demand for non-Russian natural gas is soaring after Russia's invasion of Ukraine, the short to medium-term prospects for U.S. liquefied natural gas (LNG) developers and exporters are becoming brighter.    Europe is racing to replace as much Russian gas as soon as possible and to be independent of that gas by 2027. LNG demand is going through the roof, boosting the development of new U.S. export liquefaction capacity as the demand prospects of the European market suddenly became much brighter than a year ago. More and more buyers, including in Europe, are committing to or thinking of committing to long-term LNG deals in order to shield themselves from high and volatile spot LNG prices. Even Europe, motivated to eliminate its energy dependence on Russia, is considering long-term deals with LNG developers. European buyers were swearing off long-term supply agreements just a year ago because of environmental concerns and the EU's net-zero by 2050 goals.  

LNG project development appeared to have stalled in the United States just a year ago. Now the forever-changed energy markets give U.S. LNG exporters more certainty that they will be able to secure financing and long-term contracts in order to proceed with the construction of more LNG export facilities. 

U.S. To Lead LNG Supply Additions 

America will lead the global LNG liquefaction capacity additions through the middle of this decade, data and analytics company GlobalData said in a recent report. The United States will account for 57 percent of all new LNG liquefaction capacity expected to come online globally between 2022 and 2026, according to GlobalData. 

The U.S. is expected to add a new build LNG liquefaction capacity of 220.3 million tons per annum (mtpa) by 2026, while expansion projects account for the rest with 30.3 mtpa.  

"LNG developers in the US are incentivized by ever-growing demand for natural gas worldwide, especially in the Asian and European regions. The plans of several European countries and Japan to reduce their dependency on Russian gas post Ukraine invasion would further boost liquefaction developments in the US," Himani Pant Pandey, Oil & Gas Analyst at GlobalData, said, commenting on the report.

Venture Global's Plaquemines LNG will be one of the key new facilities with a capacity of 20 mtpa, GlobalData said. 

Two weeks ago, Venture Global LNG announced a final investment decision (FID) and successful closing of the $13.2 billion project financing for the initial phase of its Plaquemines LNG export facility in Louisiana and the associated Gator Express pipeline—the largest project financing in the world closed so far this year. 

Related: Why Nuclear Energy Is More Relevant Than Ever

Plaquemines LNG is also the first U.S. LNG export facility to reach FID in nearly three years, since Calcasieu Pass LNG of the same firm was given the green light in August 2019. Calcasieu Pass already exported its first LNG cargo in early March this year.  

After the COVID-related slump in global demand, the LNG market is hot again and U.S. developers stand to benefit from Europe's pivot away from Russian energy. 

Europe Ousts Asia As Top U.S. LNG Market

Since the energy crisis of last autumn, Europe has displaced Asia as the growth driver of LNG demand and is no longer "the market of last resort" for LNG cargoes. The Russian invasion of Ukraine has further spurred Europe to start reducing its heavy reliance on Russia's piped gas, without which the continent currently risks a severe industrial slowdown and a rush to secure heating for next winter. 

As of June 8, gas storage capacity in the EU was just over 50% full, according to data from Gas Infrastructure Europe. The EU member states are now required to reach a minimum 80% gas storage level by November 1 to protect against potential interruptions to supply. From 2023, the target will be raised to 90% full gas storage by November 1. 

The European rush to LNG made Europe the top market for U.S. LNG exports in the first four months of 2022, the EIA said in a report this week. Between January and April, the United States exported 74% of its LNG to Europe, compared with an annual average of just 34% last year. In 2020 and 2021, Asia was the main destination for U.S. LNG exports, accounting for almost half of all U.S. exports. 

At the same time, U.S. LNG exports to Asia slumped by 51% in the first four months of 2022, due to lockdown measures, a mild winter, and high LNG spot prices, which reduced demand for spot LNG imports. "High spot natural gas prices at the European trading hubs incentivized global LNG market participants with destination flexibility in their contracts to deliver more LNG supplies to Europe," the EIA said. 

Long-Term LNG Deals Return 

As spot LNG prices soared to record highs and remain highly volatile while Europe seeks to reduce Russian pipeline gas dependence, buyers are returning to long-term contracts in order to secure the long-term supply of non-Russian gas and to insulate themselves from spiking volatile spot prices.

"Many traditional LNG buyers will neither procure spot gas or LNG nor renew or sign additional LNG contracts with Russian sellers. Spot prices have also been high and volatile, pushing many buyers towards long-term contracts," Wood Mackenzie principal analyst Daniel Toleman said last month. 

"Additionally, some buyers are returning to long-term contracting on behalf of governments to protect national energy security." 

The new world energy order in which geopolitics trump market signals will likely accelerate the momentum for additional U.S. LNG export capacity as buyers in Europe are turning to the U.S. and Qatar for gas supply to replace Russian energy.  

By Tsvetana Paraskova for

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Shrinking Spare Capacity Will Only Send Oil Prices Higher

By Irina Slav - Jun 09, 2022, 7:00 PM CDT

  • The decision by OPEC+ to boost its production quotas did not have the desired effect on oil markets, with prices having increased since then.
  • One of the main reasons for this upward pressure is that the world’s spare oil production capacity is extremely tight.
  • With so little spare capacity, the risk of Libya going offline or a major hurricane-induced disruption in the Gulf of Mexico has oil markets worried.

When OPEC+ agreed to boost its monthly production growth target from 432,000 bpd to 648,000 bpd last week, many politicians in Europe and the White House across the Atlantic must have breathed a sigh of relief. But it wasn't a lengthy relief. Following the OPEC+ announcement, oil prices should have dropped, but they didn't. Prices rose. And this wasn't just because the increase in target production growth could remain on paper only. It was because of spare capacity as well.

That the world's spare oil production capacity is quite tight has been known for a while now. There have been warnings that underinvestment in new oil exploration, in large part a result of the investor shift to ESG opportunities and government policies discouraging more investment in oil, will lead to lower spare capacity. Yet these warnings remained largely unheeded.

Across OPEC+, there are only a few countries that can actually boost their oil production in a palpable way. And their combined spare capacity is not all that great. It is also falling.

According to conservative estimates, cited by Reuters, OPEC's spare production capacity could slip below 1 million barrels daily by the end of this year. This is equal to less than 1 percent of global demand.

According to the EIA, the situation looks a lot better, with OPEC's spare capacity at around 3 million bpd right now.

And according to Energy Aspects, the spare capacity of the extended OPEC+ group is about 1 percent of global daily demand, which is currently at around 102 million barrels.

This is not a whole lot of oil production that can be tapped within 30 days, per the definition of spare capacity by the U.S. Energy Information Administration. And if an outage happens somewhere in the world, it will become painfully clear exactly how little this is.

Related: Why Nuclear Energy Is More Relevant Than Ever

One energy analyst put it succinctly after OPEC+ announced the new production target.

"Saudi has to make a choice — do we let the price go higher while maintaining a super emergency, super crisis level of spare capacity?" Paul Sankey from Sankey Research told CNBC last week. "Or do we add oil into the market and go to effectively almost zero spare capacity, and then what happens if Libya goes down?"

Given that Libya "goes down" on average once a quarter and sometimes for an extended period of time and given that hurricane season is beginning in the Gulf of Mexico, the picture becomes even grimmer.

In previous years, hurricane season has taken offline the bulk of U.S. offshore oil production, which in turn accounts for 15 percent of total U.S. oil production. The bullish factors for oil seem to be just piling up.

"Saudi Arabia will be producing (about) 11 million bpd by the end of summer, and real spare capacity globally which can be brought online fairly quickly will be standing at just 1.5% of global demand," Barclays said in note, in which the bank raised its forecast for Brent crude by $11 per barrel for this year and by $23 per barrel for next year, Reuters reported this week.

If this happens, Saudi will be near its spare capacity limit: it has never produced 11 million bpd for an extended period of time, Reuters noted in the report. It probably won't do it now, either—see the choice outlined above by Sankey.

In fact, according to other forecasts, OPEC+ will go nowhere near its new target: JP Morgan sees actual output additions at 160,000 bpd in July and 170,000 bpd in August. Leaving geopolitics aside, although geopolitical considerations have a big part to play in OPEC+'s policies, there is simply not enough spare production capacity to make that production boost work.

By Irina Slav for

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White House Ups Anti-Oil Company Rhetoric

By Julianne Geiger - Jun 09, 2022, 2:00 PM CDT

The White House is doubling down on its rhetoric against oil and gas companies in the wake of higher gasoline prices—rhetoric that is likely to do precious little to inspire long term investments in an industry that is scrambling to meet demand—but one that could garner support for a possible windfall tax on the heavily profitable industry.

"It's outrageous that oil and gas companies are able to take advantage and make four times the profits that they made when there wasn't a war," deputy director of the National Economic Council Bharat Ramamurti told CNN in a phone interview on Thursday.

Ramamurti wasn't dismissive about the windfall tax either. When asked by CNN if the White House would support the windfall profit tax, he replied, "We review all of those proposals. We are open to lots of different ideas. We realize there is a problem here we need to tackle."

Public oil and gas companies are indeed profiting handsomely from today's high crude prices, and are expected to rake in $834 billion in total free cash flow this year—an all-time high, according to energy intelligence firm Rystad Energy.

This compares to $493 billion in 2021—another record profit year, and $126 billion in 2020—the first year of the pandemic as demand crashed.

Many U.S. oil companies lost money during the downturn, much to the dismay of the shareholders. Exxon lost $22 billion in 2020, while Conoco Phillips lost nearly $3 billion. Chevron lost $5.5 billion that year.

Related: U.S. SPR Release Is Creating A Problem For Canada’s Heavy Crude Oil

Cash from operations is also expected to balloon this year, Rystad said, as oil companies break the $1 trillion barrier for the first time. This is expected to increase so significantly as oil and gas companies typically use these funds to finance new investments, pay down debt, and pay out dividends. While there are plenty of oil and gas companies paying down debt and making large payouts to shareholders who weathered the lean years of the pandemic, the growth in investments is only set to increase slightly this year.

President Biden upped his anti-oil company rhetoric on Wednesday night on Jimmy Kimmel Live, accusing oil companies of making "more money not drilling and buying back their own stock."

By Julianne Geiger for

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How & Why Big Oil Conquered The World with transcripts
Episode 310 – How Big Oil Conquered The World – 12/28/2015
Episode 321 – Why Big Oil Conquered the World – 10/06/2017

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Trafigura CEO Warns Of "Parabolic" Blowoff Top In Crude As Worst Of Energy Crisis Just Ahead 

Tyler Durden's Photo
by Tyler Durden
Thursday, Jun 09, 2022 - 12:25 PM

One of the world's largest independent energy merchants - Trafigura, which trades hundreds of billions of dollars in commodities every year, warned crude oil prices could catapult to $150 or more, in what could be an epic blowoff top

Jeremy Weir, chief executive of the commodity trader, told the FT Global Boardroom conference on Tuesday that energy markets are in a "critical situation... I really think we have a problem for the next six months . . . once it gets to these parabolic states, markets can move and they can spike quite a lot."


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