Help Is on Its Way - How Much More LNG Can the U.S. Send to Europe?

U.S. LNG exports are at an all-time high, driven primarily by new capacity online or commissioning, but the existing terminal fleet has also been pushing production to the max as offtakers, particularly in Europe, hunt for every spare molecule they can find. Every single terminal in the U.S. set a new monthly export record in either December or January. But is it enough? With the ongoing and tragic war in Ukraine threatening energy security and reliability in Europe, where gas storage inventories are already running low, the focus increasingly turns to LNG to replace at least some of the gas it typically imports from Russia. It sounds great in theory, and in the long term more LNG capacity will be added, but for now, we’re stuck with the infrastructure we’ve got, putting a ceiling on both how much Europe can take and how much exporters, including the U.S., can send. In today’s RBN blog, we look at the potential for incremental LNG exports from the U.S. to Europe to help offset Russian gas.

In our recent blog, You Don’t Own Me, we provided a primer on European gas markets and the European Commission’s (EC) new plan to reduce the European Union’s (EU) Russian gas imports by two-thirds (or 10 Bcf/d) by the end of this year, an extremely tall order as Russia has been supplying about 45% of Europe’s natural gas. Of course, not all of the Russian gas being replaced is expected to come from LNG — that’s not remotely possible given existing infrastructure. But the plan calls for 50 billion cubic meters (Bcm) more LNG, which is equal to about 1,765 Bcf, or around 519 additional LNG cargoes. [Prior to the EC’s announcement, the International Energy Agency (IEA) laid out a similar but less-aggressive plan, which calls for about half that level of additional LNG imports.] You Don’t Own Me goes into some of the potential pitfalls of the EC plan, like connectivity within Europe to distribute the imported LNG, but putting that aside and taking the EC at its word about what European import terminals can handle, can European buyers even get their hands on an additional 500 cargoes this year? Or even an additional 200, per the IEA plan?

Most of the world’s LNG supply is produced in the U.S., Australia, and Qatar [see Three’s (Not Always) a Crowd], with the U.S. surpassing the other two for the first time this winter. More importantly for increasing exports to a very specific market (in this case, Europe), the U.S. LNG sector also is the source with the greatest destination flexibility. Further, the U.S. is the closest of the three major suppliers from a days-on-the-water perspective to where the bulk of the cargoes land in Northwest Europe. Between the contract flexibility and proximity of U.S. offtake, many of the additional cargoes Europe will likely need to come from the U.S. The question is, how much more U.S.-produced LNG can be delivered to Europe this year.