Failure Income: Why the US Benefits Not to Supply LNG to Europe


Major customers in Europe abandoned June shipments of US LNG feedstock. It became more profitable for companies to pay the fines stipulated by the supply contract than to transport expensive energy through the ocean and then regasify it. In addition, by the time the contracts are physically implemented, there will no longer be any place for this fuel in the EU gas storage facilities. This was reported by Reuters.


Ten customers from Europe canceled 22 scheduled for June deliveries of liquefied natural gas (in total, more than 2 billion cubic meters) from the United States. Seventeen futures from several factories of Cheniere, Sabine Pass, as well as Corpus Christi, and five more from the Freeport terminal.

"Riot of the big players"


According to Reuters sources, among traders who refused to supply, there were such well-known brands as the British Shell, the French concern Total, the German Uniper, the famous company Enel (Italy). In other words, not the latest players in the gas market, which can serve as an obvious signal for companies below. In turn, the massive rejection of futures has every chance of escalating into a gap in long-term contracts, experts warn.

Neither the American nor the European sides comment on the situation. Unless the lawyers representing Cheniere told agency reporters that the contracts provided for certain conditions under which customers can refuse to load, compensating for the cost of liquefaction with a fine (approximately $ 100-125 per thousand cubic meters).

This approach is justified, explained industry experts from Seeking Alpha. Firstly, such conditions of the agreement allow customers to avoid bankruptcy in case of unforeseen circumstances, and secondly, such a penalty acts as a forfeit and protects the supplier from unnecessary costs, covering the main risks of American LNG terminals.

Pandemic hits demand for blue fuel


According to Aleksey Grivach, an expert at the NESF, the operating expenses of American shale producers exceeded the rapidly declining spot gas prices in Europe. The last recorded price on the American Henry Hub is $ 67. And on the site of TTF (EU) and even less - $ 62 per thousand cubic meters. It turns out that the United States receives some revenue from failures, which is why it is more profitable for them not to supply LNG to Europe than to liquefy and transport them overseas.

Warm winters and minimal fuel demand, worsening due to global quarantine, left UGS facilities in Europe in a record full state - more than 60% at the end of winter. At such a pace, American LNG terminals will simply stop, because both demand and the price of raw materials will be “crushed to the floor.”

It is noteworthy that all these crisis phenomena were predicted (up to the refusal of supplies and gas prices) by the chief analyst of the Oxford Institute for Energy Research Mike Fulwood back in 2019, when no one could know about the future coronavirus pandemic.
Used photos: gazprom.com
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  1. gorenina91 Offline
    gorenina91 (Irina) April 24 2020 09: 14
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    Pandemic hits demand for blue fuel

    - Yes, a pandemic on the contrary should cause huge demand for “blue fuel” ....
    - In the Middle Ages and at other times during the plague epidemic, bonfires burned everywhere in the streets of Europe ... - so people tried to escape from infection ...
    - And what is it worth today to quickly organize a gas supply system with tens of thousands of burners on the streets of Europe ... - And some substances would be put on these burners, during the combustion of which the disinfection effect is obtained ...
    - Well, our craftsmen would have taken in Russia and would have been quick to fuss with the creation of such devices and would have advertised them ... - All of Europe would quickly have bought them up ... - And how would the demand for gas jump ... ... just at times .. .
    - The same can be done with oil ... - They would have smoked the whole of Europe with smoke from burning oil ... - and would have quickly dealt with the epidemic ... - And how would the demand for oil jumped up ... - you would have immediately used up all "excess oil" (fuel oil) and all the hydrocarbon that smokes well during combustion ...
    - It’s just that there is no business in Russia (neither small nor medium — no) ...- Otherwise, we would have done such burners long ago; If they made an advertisement for them and would sell them anywhere ... - And oil and gas would immediately become a deficit ... -Hahah ...
    1. boriz Offline
      boriz (boriz) April 24 2020 09: 33
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      Interestingly, is this such an attempt to joke, or is everything much more serious? ...
    2. antibi0tikk Offline
      antibi0tikk (Sergei) April 24 2020 17: 20
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      Why did you bombard Irina? She put forward an interesting idea! Burners are a theme! And as “any substances” use all kinds of tin, stoltenberg, Kachinsk, powder and other sewage! Disinfection would be awesome!
    3. Rum rum Offline
      Rum rum (Rum rum) April 24 2020 18: 24
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      And today it’s worth quickly organizing a gas supply system with tens of thousands of burners on the streets of Europe ...
      - And some substances would be put on these burners, during the combustion of which a disinfection effect is obtained ...

      It's not gonna go. They had already experimented with this - during the plague epidemic. Did not help.
  2. boriz Offline
    boriz (boriz) April 24 2020 09: 31
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    Well, where is the promised change of "American" LNG? And where is the price? It all consists of freedom molecules, unlike aggressive Russian gas!
  3. Bakht Online
    Bakht (Bakhtiyar) April 24 2020 09: 46
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    The logic of the Western economic model is interesting in this post.
    Specifically for gas: The take-or-pay principle was invented by Europeans to develop gas deposits in the North Sea. And 40 years acting. And then (when Groningen dried up), the European Commission suddenly became concerned that this was a non-market principle. And canceled it. And allowed not to execute it.
    Now the United States has come up with the principle of "liquefy or pay." To increase the profitability of its LNG terminals. The fact that companies pay a fine is not the whole truth. They pay for the liquefaction of contracted volumes of gas. I wonder when the West recognizes this principle as non-market?
    ----
    It makes sense to attend to the accurate EXECUTION of signed contracts without the right to change them by decision of any court.
    1. boriz Offline
      boriz (boriz) April 24 2020 10: 23
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      A gentleman always follows the rules. If the rules no longer suit the gentleman, he changes the rules.
    2. 123 Offline
      123 (123) April 24 2020 23: 14
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      It makes sense to attend to the accurate EXECUTION of signed contracts without the right to change them by decision of any court.

      good It is necessary to create a new sustainable system. Carthage must be destroyed. I mean, Stockholm arbitration in the furnace. negative