Europe’s LNG Success Is U.S. Opportunity, Russia Challenge
Efforts to import more liquefied natural gas are paying off, helping weaken Europe’s reliance on gas supplies from Russia
By Christopher Alessi and Sarah McFarlane (Wall Street Journal)
Sept. 26, 2018 6:00 a.m. ET
European efforts to import more liquefied natural gas are starting to pay off, moving the region further away from Russia’s energy orbit and potentially creating more opportunities for U.S. producers.
Shifting to LNG has been a significant turning point for countries such as Lithuania and Poland, whose energy bills have fallen since they built LNG terminals in 2014 and 2016, respectively.
The new LNG terminals on the Baltic Sea, Russia’s former backyard, are expected to prompt the opening of other European facilities that can turn to shipments of natural gas from places like the U.S. and Qatar, industry experts said.
There are currently about six LNG projects in development or on the drawing board in Europe, most of them in countries that are in Russia’s former sphere of influence. Earlier this month, German energy company RWE AG signed up to take a chunk of the future capacity of a planned LNG terminal in Hamburg, Germany.
The success of the Baltic terminals should give investors and industry participants more confidence in the economics of these projects, experts said.
More European LNG import terminals would be welcome news for U.S. energy companies such as Cheniere Energy Inc., as they have been eagerly awaiting new projects abroad to eat into a glut of natural gas that has kept the U.S. benchmark price below $4 per million British thermal units for years. Natural-gas futures for October delivery settled at $3.0820 a million British thermal units Tuesday on the New York Mercantile Exchange.
More than a dozen export projects are awaiting regulatory approval in the U.S., according to the Federal Energy Regulatory Commission.
In the first half of the year, the U.S. delivered 9.8 million tons of LNG globally, with 59% of its exports going to Asia and only 4% to Europe, according to Andy Flower, a U.K.-based independent LNG consultant and industry veteran.
LNG has also taken an important role in the trade spats between the U.S. and its major trading partners. In July, the European Union said it would buy more U.S. LNG as part of an attempt to dial down trade tensions with President Trump. Last week, China said it would impose a 10% tariff on U.S. LNG imports as part of its retaliation against new Trump administration tariffs on $200 billion in Chinese goods.
To be sure, Russia is still the biggest supplier of natural gas to Europe, with a market share of over 30%, according to the European Commission. A new gas pipeline, Nord Stream 2, would allow Russia to export even more natural gas to Germany. It began construction this year despite U.S. pressure on Berlin to withdraw its support.
The U.S. administration has opposed the pipeline over concerns that it would increase Europe’s already-high dependence on Russian natural gas and give the Kremlin political leverage and substantial revenues.
The LNG terminals offer an alternative supply of natural gas and force Russia to compete, according to analysts. Earlier this year, Russia’s state-owned gas giant PAO Gazprom agreed to set its prices in line with open Western European markets after the EU brought an antitrust case against it. A representative at Gazprom declined to comment.
Around the world, countries are moving to gas to wean themselves off more polluting energy sources such as coal and oil, and because a glut of new supply from U.S. shale and elsewhere means its plentiful and cheap.
For Europe, seaborne LNG has also become an alternative to the dominance of Russia’s piped gas.
“We have had many historical challenges with Russia, but now gas supply has been depoliticized,” said Zygimantas Vaiciunas, Lithuania’s energy minister. The LNG terminal is “the key card in our negotiations” with Gazprom, he said.
Lithuania’s fuel import bill fell by 22% between 2014 and April 2018, while in Poland it fell by 11% in the same period, even as both countries consumed more gas and oil, according to data provider CEIC.
In the past, Lithuania was paying 20% to 25% above most other European Union countries for its Russian pipeline gas imports, said Mindaugas Jusius, chief executive of Lithuania’s terminal operator Klaipedos Nafta. With the LNG terminal, Lithuania was able to bring Gazprom to the table and renegotiate its contract for pipeline gas, he said.
“Since the initial goal was security of supply, I’m not sure if we were expecting such a quick pay-back,” said Mr. Jusius.
The EU has made LNG a big priority, helping fund the terminals in Lithuania and Poland and one in Malta, while committing money to a project in Croatia.
“The objective of the Energy Union strategy is to diversify the energy sources and ensure that no EU member state is dependent on a single supplier,” said a spokesperson for the European Commission.
Other countries also want to use more LNG.
Gas is expected to be 24% of the world’s energy mix by 2040, up from 22% in 2016, according to the International Energy Agency. LNG’s share of that market is set to rise to almost 40% in 2023, from around a third in 2017, the IEA forecast.
—Jon Sindreu contributed to this article.