“Why Europe’s reliance on US LNG is risky”

In the current year, the United States boasts of being the world’s largest exporter of liquefied natural gas (LNG) as deliveries to Europe, in the grip of a serious energy crisis, and to the Asia are increasing.
So far in 2022, five developers have signed more than 20 long-term agreements to supply more than 30 million metric tons/year of LNG, or approximately 4 billion cubic feet/d, to energy-starved buyers in Europe and Asia.
Europe’s desperate bid to rid itself of Russian gas took on even more urgency this week, as Moscow announced that flows via Nord Stream 1 to Germany would remain cut off until the West lifts sanctions. .
This desperation has led Europe to supplant Asia as the top destination for US LNG. In fact, Europe now receives 65% of total US LNG exports.
But there are growing fears that trading one addiction for another carries another kind of risk: Putting all your eggs in the US LNG basket means betting on Mother Nature.
U.S. LNG supplies may not be vulnerable to Russia, but they are vulnerable to extreme weather and harrowing hurricane seasons that disrupt production and exports. Europe cannot afford further disruption.
Vulnerability in the Gulf of Mexico
The bulk of the LNG export facilities in the United States, including the proposed facilities, are located along the Gulf Coast, and much of the gas supplying these facilities comes from nearby inland reserves, New Mexico and Texas to Louisiana, and beyond.
This is a hurricane-prone region, which means that when hurricanes arrive, everything from liquefaction to shipping and mining to processing is likely to be disrupted. It’s happened before, and recently.
In recent years, multiple hurricanes have caused varying degrees of disruption to the LNG market, with impacts spanning the entire supply chain, from brief outages to lengthy processing and shipping disruptions.
Hurricane Laura in 2020 caused a two-week disruption at the Sabine Pass LNG export facility and well over a month at Cameron LNG.
Last year, Hurricane Ida caused a major and lasting reduction in offshore gas production.
This year, an explosion in June at the Texas-based Freeport LNG facility knocked nearly 20% of the United States’ LNG export capacity offline, sending LNG markets into a tailspin.
Scientists say Gulf Coast hurricanes are becoming increasingly violent, causing record flooding and endangering critical infrastructure.
Meanwhile, while the United States has the largest pipeline of new LNG projects in the world, there are also limits to what it can do without more pipeline capacity to accommodate this growing energy segment.
In the Appalachian Basin, the nation’s largest gas-producing region producing more than 35 billion cubic feet a day, environmental groups have repeatedly halted or slowed pipeline projects and limited growth in the northeast.
This leaves the Permian Basin and the Haynesville Shale to support much of the projected LNG export growth. Indeed, the CEO of EQT Corp. (NYSE: EQT) Toby Rice recently acknowledged that Appalachian pipeline capacity had “hit a wall.”
Analysts at East Daley Capital Inc. have forecast U.S. LNG exports to reach 26.3 billion cubic feet per day by 2030 from their current level of nearly 13 billion cubic feet per day.
For that to happen, analysts say an additional 2-4 bcfd of takeout capacity would need to come online between 2026 and 2030 in Haynesville.
“This assumes significant growth in gas from the Permian and other associated gas plays. Any sight where oil prices drop enough to slow down this activity in the Permian and you will need even more gas from more gaseous basins,” wrote analysts said.
Mozambique to the rescue Although it may be a bit late in the game, Europe is starting to seriously consider Africa for its future energy supplies. Most notably, Mozambique is about to ship its first shipment of liquefied natural gas (LNG) to Europe at this critical time.
This too is fraught with vulnerabilities in the form of political instability and insurgency.
French TotalEnergies’ LNG project in Mozambique has been sidelined by the insurrection. Eni’s Italian FLNG Coral-Sul is safe from the severe flashpoint and on track to help serve Europe, with BP having already signed a deal to buy all production for 20 years from the Coral project -Sul of 7 billion, designed to produce 3.4 million tons of LNG.
The Italian company is already planning a second floating export platform in the southern African country which could be completed in less than four years. But nothing is certain here.
At the heart of the insurgency, TotalEnergies announced plans to resume its huge $20 billion project towards the end of the year, with the terminal expected to produce 13.1 million tonnes of LNG per year.
That is, if it ever overtakes the insurrection that led to a declaration of force majeure. The project hopes to restart in the first half of next year.
Optimism is there, despite everything. ExxonMobil says it will make a final decision on an even bigger project in the near future.
Meanwhile, the European Union has planned to increase its financial support fivefold to $15 million to fight militants near Mozambique’s gas projects.
The EU has already pledged to provide the country’s military with additional financial support of €45 million ($45 million) and has so far granted a SADC mission in the country 2, 9 million euros of financing.
In the near term, Europe is making progress in filling its gas storage and is now nine weeks ahead of where it was this time last year, although it has been expensive.
Gas storage levels in Europe are over 70%, and even above the 5-year average, according to data from Gas Infrastructure Europe (GIE).
By November 1, the EU will likely reach 80% of its natural gas storage capacity, just in time for peak winter demand. Germany is even aiming for a capacity of 95%, and is already at 85%.
“The EU has already exceeded its September 1 interim fill target in early July and is still on track to meet the November 1 target,” Jacob Mandel, senior commodity partner at Aurora Energy, told Reuters. Research.
Indeed, analysts at Standard Chartered Plc say President Vladimir Putin’s gas weapon will indeed be blunted by stockpiling, with Europe poised to winter “comfortably” without Russian gas.
However, this poses two different problems: firstly, Europe will have to pay a heavy price, the cost of replenishing natural gas stocks is estimated at more than 50 billion euros (51 billion dollars), 10 times more than the historical average filling of the reservoirs before winter; Second, the block cannot survive on storage alone, unless it drastically reduces its consumption for the winter.
Europe, as it is, is vulnerable on all energy fronts, and if it’s not geopolitics and insurgency, it’s Mother Nature at her wildest.
Kimani reports for Oilprice.com

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