To replace Russian gas, Europe builds more LNG capacity and boosts U.S. imports
Energize Weekly, January 4, 2023
In the dash to replace Russian natural gas supplies, liquefied natural gas (LNG) import capacity in the European Union (EU) and the United Kingdom (UK) is set to expand by a third by 2024 as the U.S. exports record amounts of LNG to Europe.
The LNG capacity in the EU and UK is set to grow by 6.8 billion cubic feet per day (Bcf/d) by 2024 when compared to 2021, according to the International Group of Liquified Natural Gas Importers.
At the same time, U.S. LNG exports to the EU are forecast to reach more than 55 billion cubic meters (bcm) for 2022 – more than two-and-a-half times the previous year’s level, according to the Institute for Energy Economics and Analysis (IEEFA).
“Adding in the UK and Turkey, which aren’t part of the EU but have significant gas pipeline connections to the region, U.S. LNG shipments to greater European gas markets could reach 75 bcm by the end of the year, up from 44 bcm from 2021,” according to a report by IEEFA analyst Clark Williams-Derry.
Many of the new European projects to regasify LNG rely on chartered floating storage and regasification units, which can quickly be put in place and linked to new pipelines to bring the gas ashore.
“Floating regasification is increasingly being used to meet natural gas demand in smaller markets, or as a temporary solution until onshore regasification facilities are built,” according to the U.S. Energy Information Administration (EIA).
Other regasification projects in Europe will expand capacity at the existing onshore terminals and implement upgrades to increase those terminals’ throughput, the EIA said.
LNG regasification capacity in the EU and the UK remained relatively stable for the last 10 years, reaching 20.2 Bcf/d at the end of 2021.
The Russian invasion of Ukraine in February 2022 led to sanctions against the Russians by Western countries and a sharp cut in gas exports from Russia, which had been Europe’s major supplier.
Russia’s natural gas exports by pipeline to the European Union and the United Kingdom dropped almost 40 percent during the first seven months of 2022 compared with the same period in 2021 and by almost 50 percent compared with the previous five-year average, according to data from Refinitiv Eikon.
“European countries have reactivated development of previously dormant regasification projects and have started development of new projects,” the EIA said.
About 1.7 Bcf/d of the new and expanded LNG regasification capacity has been added in the Netherlands, Poland, Finland, Italy, and Germany.
Regasification terminals are under construction in seven EU countries – Germany, Poland, France, Italy, Greece, and a joint Finland-Estonia project – that could add an additional 3.5 Bcf/d of capacity by the end of 2023.
“The key reason that the U.S. LNG industry shipped so much of its product to Europe is that European buyers paid them,” Williams-Derry said. “European buyers were willing to pay a premium for any LNG cargo they could get.”
For example, on Aug. 18, futures at the Dutch TTF gas hub reached €230.05 per megawatt-hour (MWh), equal to $2,844 per 1,000 cubic meters – up 30 percent from July 26.
The U.S. ramped up exports with existing export terminals – even as the Freeport terminal in Texas, accounting for 20 percent of total capacity, went out of service due to an explosion in July.
The Calcasieu Pass LNG plant in Louisiana, opened in 2022 and is now at full output capacity, and the return of Freeport later in 2023 will boost the ability to send LNG to Europe even more.
“The U.S. has shipped more LNG to Europe than virtually anyone thought possible, and could ship even more next year,” Williams-Derry said.
The IEEFA analysis cautions, however, that the EU’s appetite for U.S. LNG isn’t necessarily guaranteed in the long run.
European countries are looking for other supplies, with Germany signing a 15-year deal with QatarEnergy and ConocoPhillips to supply 2 million tons of LNG annually.
In addition, there is a growing push to cut demand for gas and an emphasis on energy efficiency in Europe. Bruegel, a European economic think tank, projects that these trends, plus the EU’s commitment to cut greenhouse gases, could lead to steep cuts in LNG demand by 2030.
“The boom in U.S. LNG exports to Europe could be fleeting,” Williams-Derry said. “Yes, we can expect European demand for LNG to remain high for several years, as the continent adjusts to a new and more fractious relationship with Russia … But long-term LNG demand, both in Europe and globally, is far from assured. High gas prices and the advancing global energy transition have already put a dent in global LNG demand growth.”
