Germany's Federal Minister for Economic Affairs and Energy Peter Altmaier announced earlier this week that European nations were ready to build the necessary infrastructure to import liquefied natural gas (LNG) from the U.S. At this time, Europe has 28 ‘regasification' import terminals.
"Then it will be up to the U.S. to offer prices which are competitive," Altmaier told the press.
While importing gas from Russia via pipelines is relatively cheap for Germany, as Europe's largest importer of natural gas Germany seeks to diversify its supply source to ensure energy security and competitiveness. Nonetheless, Russia and Germany are collaborating on expanding the Nord Stream pipeline, which delivers natural gas to Germany directly from Russia. The expansion would double Nord Stream's current annual capacity of 55 billion cubic meters to 110 billion cubic meters.
Germany ranks ninth in energy security on the International Index of Energy Security Index, with a risk score below the Organisation for Economic Co-operation (OECD) average. By comparison, the U.S. ranks fourth, with a risk score above the OECD average.
Russia also is currently the largest provider of natural gas to the European Union (EU), providing 39 percent of the EU's total consumption. Norway and Algeria provide 30 percent and 13 percent respectively through conventional pipeline networks. In 2017 LNG only accounted for 14 percent of EU gas imports, with Qatar supplying 41 percent of that amount. By contrast, the U.S. only provided four percent
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The desire among European nations to lower their over-reliance on Russian oil and natural gas is a driving force for an increase in trans-Atlantic trade of LNG. Moreover, demand for natural gas in Europe is rising steadily due to a myriad of energy market factors. Europe is preparing for the potential halving of its domestic production over the next 20 years due to declining natural gas production in the North Sea by Norway and the Netherlands. As of 2018, their facilities were only operating at 25-30 percent of previous production levels. In addition, Germany is in the process of phasing out nuclear power from its energy grid by 2022, while France is seeking to lower nuclear power in its energy grid from 75 percent to 50 percent. Additionally, intermittency in wind and solar power generation has required back-up generation in the form of natural gas.
President Trump has pushed LNG as a critical issue in the larger trade negotiations between the U.S. and the EU. The U.S. is the world's largest producer of natural gas and generates one-third of its electricity from natural gas. The country exported over 700 billion cubic feet of LNG in 2017, primarily via tanker ships. By March 2018, the U.S. had delivered LNG exports to 27 countries on five continents. France, Italy, the Netherlands, Portugal, Spain, and the United Kingdom are turning to the United States as an LNG supplier. Additionally, there is also interest in LNG imports from the U.S. in the Middle East and Asia.
The United States is currently building out its capacity to liquify and export natural gas. The first export of domestic natural gas in the lower 48 states occurred in February 2016 via Cheniere Energy's (LNG: NYSE) Sabine Pass LNG terminal in Louisiana (the LNG was delivered to Brazil). Since then Dominion Energy (D: NYSE) Cove Point terminal in Maryland has come online. Previously the U.S. only had one LNG export terminal in Alaska – for exports to Japan.
FreightWaves reached out to Fred H. Hutchison, President & CEO of LNG Allies, a trade organization dedicated to advancing LNG exports from the United States. He spoke extensively on the prospect of the country becoming the largest exporter of liquified natural gas, with Europe as a strong client.
"U.S. LNG expansion is being built in a succession," said Hutchison. "We currently have three projects operational. We should have three more projects under construction, bringing the first wave to fruition."
ICF International, a global consulting and technology services company, found that the cumulative value added from U.S. LNG export terminals will be $716 billion by 2050 and will support between "2 to 3.9 million jobs" based on the 2018 reference case conducted by the U.S. Energy Information Administration (EIA).
Legislation to promote the development of LNG trade has been pushed on Capitol Hill. In 2018 the U.S. House of Representatives passed HR 4606, which would reform the Natural Gas Act to mandate that the U.S. Department of Energy approve small quantity imports and exports of LNG with trade partners that do not have free trade agreements with the U.S. Since the country's LNG market has been operating on spot pricing, this would make U.S. regulations on natural gas exports far more flexible and competitive compared to long-term LNG supply contracts held by Australia and Qatar.
U.S. LNG exports to Asia should grow. South Korea is currently the largest foreign buyer of U.S. LNG, importing almost 35 billion cubic feet in October 2018. During that same month China and India bought over seven billion cubic feet from the U.S., while Japan bought three billion cubic feet. However, the ongoing trade dispute between the U.S. and China has enabled Australia to meet China's LNG demand – at least in the short-term. Hutchison predicts that the United States will become the world's largest exporter of LNG; China is now the largest importer of LNG.
However, many consumers and manufacturers have expressed opposition to natural gas exports from the U.S. due to concerns for domestic prices. The Industrial Energy Consumers of America, a trade association which represents the energy interests of the U.S. manufacturing community, sent a letter to the U.S. Senate Committee on Natural Resources in September 2018 that warned of natural gas prices doubling because of LNG exports to Europe.
The letter cited Australia, which has seen increased energy prices and government intervention as the country has become a major LNG exporter. The EIA found that Eastern Australia spot prices for domestic consumption twice spiked from around $A5 per British Thermal Unit (BTU) to over $A10. This occurred as the price of LNG exported to Japan, Australia's largest buyer of LNG, dropped to under $A10 per BTU. The letter also cited rising gasoline prices in the U.S. as the country became a net exporter of crude oil in the first half of 2018.
In response, Hutchison stated that this concern was not accurate, because increased demand for U.S. LNG from overseas would prompt increased domestic production, thereby offsetting price increases. He went on to say that current natural gas price increases are in localities such as the Northeast, where pipeline infrastructure is insufficient.
Finally, environmental arguments are rising in opposition to U.S. LNG exports. The 116th Congress has a number of new members who are advocating a "green" energy infrastructure that would largely reduce the use of natural gas in the economy.
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