A parade of tankers with LNG has soothed a crisis in Europe
The lights in Europe are being kept on by giant ships sailing from ports in Texas and Louisiana.
The ships are loaded with natural gas, chilled to a liquid. Europe used to be a fickle customer for liquefied natural gas, preferring to rely on often cheaper pipeline gas from Russia, Norway and
North Africa. LNG used to go primarily to Asian countries willing to pay more, such as China, Japan and South Korea.
All that has changed over the past year. Europe, responding to cutoffs of natural gas by Russia and trying to fill storage facilities to ward off winter cold, has been willing to pay almost any price to outbid other buyers.
“At the moment, we cannot do without LNG,” said Augustin Prate, vice president for energy and commodities at Kayrros, a Paris-based research company.
The upending of the natural gas market in Europe has been headspinning, and it isn’t over. Europe’s gas storage facilities, which gorged on LNG all spring and summer, are full; they can barely take any more. The price of a shipload of
LNG, which might have sold for $20 million two years ago, soared to perhaps $200 million last summer, and is now about half that, with winter fast approaching.
Now, around 40 tankers with chilled gas worth billions have been sitting off the coasts of Europe and Asia, anticipating that if they wait until the weather turns colder before unloading their fuel, they will be paid higher prices.
The year’s tumult has been profitable for some and costly for many. Consumers and businesses in many countries are paying for this haul of LNG through higher utility bills that have forced some companies to shut down temporarily and prompted street protests. Governments trying to soften the blow through subsidies or nationalization of energy companies have soaring debt levels.
The largest tankers hold enough gas to heat a small city of 70,000 homes for a year, according to an industry estimate, and the parade of LNG tankers heading to Europe has increased more than 50 percent over last year, compensating for Russia’s cutoffs. The bulk of that increased traffic has come from the United States, which, because of shale drilling, has grown to be one of the top global exporters of LNG, along with Qatar and Australia.
“U.S. LNG has become a foundation for European energy security,” said Daniel Yergin, an energy historian.
In the days when Russia supplied up to 40 percent of Europe’s gas, the continent was considered a dumping ground for LNG, where shippers would send a tanker if demand elsewhere, especially Asia, was weak. This year, Europe has become a destination for more shippers. U.S. LNG suppliers tend to have more flexible contracts than those in other countries and so are able to go where the gas is most wanted.
After Russia invaded Ukraine, Europe quickly shifted from what the industry called “the market of last resort” to “the market of most need,” said Anatol Feygin, executive vice president and chief commercial officer of Cheniere Energy, a large U.S. LNG supplier.
This year, shipments to Europe from the U.S. have more than doubled, according to Kayrros. Cargoes from Qatar have increased about 20 percent. Russia, which continues to send LNG to Europe despite throttling back pipeline gas, has raised its exports about 10 percent. Although shipments to Asia have declined around 9 percent this year, it remains the main destination for the fuel.
Feygin said about 70 percent of the cargoes loaded at Cheniere this year had gone to Europe, including the roughly 10 percent that the company reserves for its own energy trading business.
With overall supplies growing only about 5 percent this year, Europe’s expansive appetite for LNG is most likely driving up prices around the world and making it unaffordable for many poorer countries.
Buying and selling
LNG remains a clubby, secretive business. Pricing benchmarks, especially in Europe, are less firmly established than standards such as Brent crude in oil trading.