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U.S. LNG exports both a lifeline and a drain for Europe in 2023

Record liquefied natural gas (LNG) exports from the United States helped soften the blow to Europe from sharply lower Russian pipelined natural gas supplies in 2022, and will remain a vital energy source for the continent in 2023.

But the surging cost of U.S. LNG supplies – which have roughly doubled since late 2021 – look set to come under closer scrutiny in 2023 as governments, utilities and households across Europe move to mend tattered budgets.

Soaring LNG price tags were somewhat overlooked in 2022 as governments prioritized energy security over all else amid the turmoil triggered by Russia’s invasion of Ukraine.

Greater focus on costs – and cost cutting – is likely in 2023, however, which may bring into stark relief how Europe continues to depend on imported energy supplies even after the painful severing of ties with Russia.

This in turn may further accelerate Europe’s efforts to transition away from all fossil fuels even as the region looks set to further step up LNG imports from the United States and elsewhere to sustain vital energy supplies over the near term.

U.S. PREEMINENCE

U.S. LNG exporters boosted shipments to Europe by more than 137% in the first 11 months of 2022 from the same period in 2021, according to data from Kpler, supplying more than half of Europe’s imported LNG and helping the region weather a more than 54% plunge in piped shipments from Russia.

The United States looks set to remain Europe’s top LNG seller in 2023 as U.S. LNG exporters have greater volumes of LNG available for spot market purchases than other major exporters like Qatar, and as additional U.S. export capacity comes on line.

U.S. exporters also enjoy a significant freight cost advantage over Australia and Qatar – the world’s largest overall LNG exporters.

The journey time from Cove Point, USA to Brunsbuttel port in Germany – Europe’s largest gas consumer – is roughly half that to the same port from Qatar, and a third of the journey time from Australia.

The only major LNG exporter that is in closer proximity to Europe’s top buyers is Algeria, but sellers there are expected to struggle to boost volumes available for Europe as a majority of cargoes are already spoken for by other buyers under long-term contracts.

This means that the United States will remain the primary supplier of LNG to Europe for at least 2023. This will likely generate even greater revenue for U.S exporters after a record 2022, which totaled $35 billion through September, compared to $8.3 billion over the same period in 2021, U.S. Energy Information Administration (EIA) data shows.

CLEAR COSTS

U.S. LNG exports are on course to average close to 10 million cubic meters a month in 2022, according to Kpler, compared to an average of 4.6 million in 2021.

With Europe facing critical gas shortages as Russian pipeline volumes dropped in response to Western sanctions, each cargo of U.S. LNG was highly valued by energy companies charged with keeping power supplies flowing across the continent.

But at an average of close to $4 billion a month, the cost of those U.S. supplies was significant, placing a mounting burden on governments and utilities that have also grappled with mounting expenditures in other areas as well.

In 2023, as focus turns to repairing the damage done by the Russia-Ukraine conflict, authorities are expected to weigh the value of every energy supply investment and expense, and determine the best use of scarce funds that will ensure sufficient near-term supplies and help accelerate the longer term transition away from fossil fuels.

U.S. LNG looks set to be the obvious solution to plugging the near-term energy supply gap.

But over the longer run, the high price of those imports may work against U.S. LNG exporters and speed up Europe’s campaign to reduce reliance on energy product imports by generating more power supplies at home.

Source: Reuters

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