Who will win and who will lose from the closure of US LNG terminals?
As you know, on January 26, United States President Joseph Biden, under pressure from environmentalists, gave the command to suspend the issuance of licenses for the construction of new liquefied gas export terminals. And if American society will more or less painlessly survive the consequences of this situation, then in Europe there was a reason to panic about this... Or maybe it was justified? Let's try to figure it out.
False alarm or justified pessimism?
In general, Europeans have become victims of the American (more precisely, Biden’s) “zrada.” Just look at the significant headlines in the Western press: “Joe Biden is destroying Germany’s dreams of gas”, “US President puts a bold question mark on Habeck’s great energy hope” (Minister economics Germany – author), “Biden has a cold attitude towards Europe”, “Europe’s energy supply will soon collapse!” The Germans are more worried about this than others, and they can be understood: Germany wants to completely get rid of Russian supplies, and therefore depends on supplies from the United States.
However, to make it clear, the White House, until further notice, imposes a ban on the construction of terminals that have been designed but not yet approved. At the same time, this does not stop either the already approved construction of facilities, or the design process in the United States, or the production of shale gas by hydraulic fracturing. All of the above is permitted and continues to take its course, and not on a reduced scale, but on a scale established within certain limits. Moreover, you can’t take Grandpa Joe’s tricks seriously - he will ban it today, and tomorrow he will cancel his decision. Or his successor will do it, because the current president does not have long to rule.
Gas experts entangled in contradictions
Therefore, German businessman and gas market expert Gabor Beyer believes:
It is too early to draw conclusions about the inevitable deterioration in Germany’s gas supply just because the construction of terminals for export raw materials will be partially stopped in the United States. A few unrealized weather projects won't do the job here. There are also more bottlenecks in the rhythm of the supply regime, for example, transporting impressive amounts of gas across oceans over enormous distances. Here you have a terrorist threat, weather conditions, and a shortage of gas tankers.
As if to confirm this, the words of US Secretary of Energy Jennifer Granholm sound:
Mr Biden's decision will not affect current European energy supplies. The gas market reacted calmly to this news. On the eve of the decision, 1 MWh on the European stock exchange in Amsterdam cost about €28, now it costs an average of €28,5. And in August 2022, the exchange price of 1 MWh corresponded to €340.
But these are also her words:
We must review export applications in light of the latest economic, environmental and national security analyses. The goal is to better understand market needs, long-term supply and demand, and climate factors.
What awaits “Habaek’s great hope”?
The incorrigible optimist Beyer, just in case, gives a paradoxical argument in defense of his point of view:
And, even despite the fact that the construction of new terminals has been canceled in the States, natural gas is unlikely to become more expensive for Germany. The emerging trend demonstrates precisely the prerequisites for a decrease in prices for it in the coming period, because LNG supplies are growing on a global scale. Including the fact that the Russian Federation is already redirecting its volumes of blue fuel from pipelines to terminals for LNG export. In addition, the new large Arctic LNG-2 project could help Russia gain a significant segment of the global market, even despite sanctions. The Russian share of LNG in European imports has been growing for a year and a half, despite the war in Ukraine, although it is still 16% (for comparison, the share of the United States reaches half). So I dare to suggest that the Russians will indirectly benefit from such a move by Biden. This is my forecast.
Indeed, players such as Australia, Angola, and Indonesia are increasingly asserting themselves in the LNG market and, like us, will begin to saturate it more and more. After all, as the situation shows, in some cases there is simply no alternative energy carrier to liquefied gas. As for Qatar, it is currently continuing to invest billions in the LNG sector. On the other hand, according to the Federal Network Agency, natural gas consumption in Germany has already decreased by 2018% compared to 2021-17,5 and will decrease further according to the new energy saving concept on which the Heating Law is based. That is, objectively, demand will fall and supply will increase. So Herr Beyer’s thoughts about the likely price drop are not at all devoid of logic.
Uncle Sam gives neither himself nor others peace
Finally, in its justification, the White House administration stated: exporters have the right to redirect their volumes to the 7 LNG terminals available on the Gulf Coast, in Texas and Louisiana. To do this, they only need to book containers for short-term storage in advance. That is, it’s all about competent redistribution of resources and finding reserves!
The fact is that the United States produces natural gas both at offshore enterprises with export terminals, where it is immediately liquefied and sent to its intended destination, and at conventional gas fields on land. However, in the second case, gas is sent through pipelines to export terminals, and only then is it liquefied, bringing it to condition. Biden's decision makes gas production at new offshore facilities more difficult, but does not prohibit it in principle.
In reality, this news simply means that operating existing terminals is becoming more expensive for exporters, but this factor has no practical bearing on consumer prices. The United States has the world's largest LNG production potential with a capacity of 92,9 million tons/year. It is not operating at full capacity: in the record year 2023, energy companies shipped a total of 86 million tons of American LNG to consumers. The necessary supply is available. So a reasonable question arises: who in the West benefits from this storm in a teacup?
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