Europe has emerged as the landing spot for much of the liquefied natural gas set to be exported from U.S. LNG facilities, just in time as the first tanker is set to dock at Cheniere Energy’s Sabine Pass LNG plant near Lake Charles, possibly next month.
Bloomberg News reports Asia has long been the perceived destination for American LNG, but European gas production has dropped while shale drilling in America has created an abundance of natural gas, and countries are looking for options for heating power plant fuel other than Russia, which brings its own headaches.
“It’s going to make a lot more sense for the U.S. gas to flow into the European market,” Jason Bordoff, director of Columbia University’s center on global energy policy, tells Bloomberg. “European energy security” comes from having “a diversity of supply,” he adds.
Five U.S. liquefaction projects are now being built, including Cheniere’s Sabine Pass plant, and they could have a combined capacity to ship 7.76 billion cubic feet of LNG a day by 2019, according to an analysis by Bloomberg New Energy Finance. That’s enough to put the U.S. in the company of Russia and Qatar, the world’s largest gas exporters.
Slowing Asian demand for gas is one factor behind the shift toward Europe. China will only accept 77% of contracted cargoes in 2015 amid the country’s slowest economic growth since 1990, according to industry consultant IHS Inc.
Then there’s the fact that Asian gas prices are more heavily linked to crude oil than in Europe. In February 2014, spot LNG to northeast Asia fetched a record $19.70 per million British thermal units, according to the World Gas Intelligence publication in New York. Now, after the worst oil rout in a generation, it’s closer to $7—not much higher than European prices—reducing the incentive to ship U.S. product halfway around the world.
“At a time when the Asian market is growing less strongly than before and there are so many export terminals under construction, a lot of this LNG is going to have to go to Europe,” said Massimo Di Odoardo, research director for European gas at Wood Mackenzie Ltd. in London.
