US LNG exports to Europe may not last

The United States and its natural gas have played a vital role in Europe’s attempt to fill its gas reserves before this winter season. However, record US LNG exports drove up domestic gas prices. Boomerang is back. When President Joe Biden promised the EU that there would be enough natural gas for the winter, EU politicians rejoiced and doubled down on Russian sanctions. After a few months, gas storage in the European Union is full ahead of schedule.

Meanwhile, however, LNG prices have soared like an eagle, China is reselling Russian LNG to Europe, and US gas prices are now three times higher than they were a decade ago and above. 95 percent In the futures market from November 2022 to March 2023. Most analysts in Europe are talking about a recession.

It was clear from the start that US LNG would not be enough. Energy analyst David Blackmun, for example, has repeatedly warned since March that there is plenty of natural gas in the ground in the United States, but far from all of it is being extracted. In other words, there are purely physical restrictions on US gas exports to Europe.

Then there is the price problem. For now, US LNG is competitive due to the insane curve of the European gas futures market as Gazprom has squeezed Nord Stream 1 shipments in response to the sanctions. But that does not mean that US LNG is cheap. In fact, it’s not cheap at all, which has inflated the EU gas storage refill bill 10 times than normal.

Now, there is another problem with prices in the homeland of American LNG. This is an issue that there were also warnings about earlier this year. In fact, earlier this year, investment firm Goehring & Rozencwajg Climate forecast US natural gas prices were about to take off after European prices long ago.

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The reasons for the increase were the lack of gas supplies in general and the new central role of American producers as the largest suppliers to Europe. Also, Goehring & Rozencwajg predicted that US gas production is approaching a plateau.

At the moment, gas production is on a strong rise, and so are prices Drops This week, it has remained much higher than it has been in the past two decades, ushering in what could become a major backlash against stronger LNG exports.

“We appreciate that [Joe] The Biden administration is working with European allies to expand fuel exports to Europe. A similar effort must be made for New England,” a group of New England governors wrote in a letter to Energy Secretary Jennifer Granholm this summer, in the Financial Times. Report.

They went to ask Washington to help their states — Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island and Vermont — secure enough LNG for the winter. What this means is that the governors have asked Washington to reduce exports and redirect some LNG to domestic consumers.

Granholm’s response to the governor, according to the Financial Times, was to say the administration “is willing to use all the tools in our toolkit” to help, but also added that there would be no “comprehensive concessions” from the Jones Act that effectively restrict transportation between US ports On US-made ships flying the US flag and their US crew only. In other words, no foreign-flagged vessel can load LNG in Texas and ship it to Maine, limiting New England’s options.

This message from New England governors may be a sign of more trouble in Washington’s path because of its ambition to help energy-starved Europe. Of course, this problem would not be close to the proportions of a European disaster, thanks to the fact that the United States produces all the natural gas it consumes. However, higher prices are not something consumers or businesses would welcome, especially in the midst of the war on inflation.

“LNG exports have already significantly increased inflation through higher prices for natural gas and electric power,” the Industrial Energy Consumers of America wrote in a regulatory filing cited by the Financial Times.

How bad high electricity prices are for business profitability and consumer spending can be clearly seen from a glimpse in Europe now. Just because it can’t get that bad in the US, after all, doesn’t mean it can’t get bad enough for Washington to start worrying.

At the moment, there are no indications that the administration is willing to pressure LNG exporters to keep more of their gas at home, not least because exports are already restricted due to the Freeport LNG outage. But pressure from consumer organizations may increase as the Northern Hemisphere approaches winter and energy consumption rises.

Price pressure on consumers is also at play: Many Americans say that while they are happy to help Ukraine and Europeans through their hard times, they are not willing to foot the bill for that hardship. One cannot argue with this, especially if one wants to keep control of Congress – as weak – for the next two years.

By Irina Slough for Oilprice.com

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