US ambitions to become the first in the European gas market are shattered. Buyers in Europe and Asia are refusing U.S. LNG supplies even despite penalties. The price war in the gas market is also damaging to Russia. However, Russian exporters of LNG and pipeline gas have significant advantages.
COVID puts an end to the ambitions of the United States to become leaders in the European market for LNG (liquefied natural gas). Last year, a tough battle unfolded between LNG from the USA, Qatar and Russia. So far, Qatar has been the main supplier of LNG to Europe. However, in recent years, the United States and Russia have stepped on his heels. The private company Novatek Leonid Michelson was allowed to export LNG from Russia.
Last year for American and Russian LNG was marked by a fierce struggle for the European market. Both countries have significantly increased LNG supplies to the EU. If Qatar delivered about 24 million tons of LNG, then Russia took the second place, having increased deliveries from 4.4 million tons in 2018 to more than 15 million tons in 2019. The Americans failed to overtake Novatek, although the volume of American LNG in the European market grew from 2.7 million tons in 2018 to almost 13 million tons in 2019 (data from the International Group of Importers of Reduced Gas, GIIGNL).
Moreover, by the end of the year, American LNG managed to become a leader. In November, the United States became the largest LNG supplier to Europe and maintained leadership at the end of February 2020, the US Department of Energy (EIA) reported. Of course, they hoped there this year to oust both Qatar and Russia with its liquefied gas from the market. Moreover, the US Department of Energy considered that US LNG exports would continue to grow even against the backdrop of a crisis in the US gas industry and a fall in gas demand in the context of the pandemic. Literally at the beginning of May they said that exports would grow by 21% in 2020 and the same in 2021.
However, the situation is against the plans of the Americans for gas expansion.
Clients from Asia and Europe refuse to buy American LNG in the next two months. So, in July they can cancel up to 60% of LNG ordered in the USA
due to an increase in global stocks and a decrease in demand amid the coronavirus pandemic, Bloomberg reports citing traders. US manufacturers may receive applications to cancel 35–45 shipments in July, which is more than in June. In particular, Cheniere Energy, the largest LNG producer in the United States, received requests from customers to cancel up to 30 shipments scheduled for delivery in July. Deliveries from the Sempra Energy terminal in Louisiana and the Freeport LNG Development LP project in Texas were also canceled.
On average, between January and April there were 60–75 shipments from American LNG projects per month. But already in June, buyers canceled dozens of U.S. LNG shipments from Sabine Pass and Corpus Christi terminals. And the situation only worsened – now in July, more than half of the deliveries have already been canceled.
“In the gas market we are witnessing a price war, almost the same as in the oil market. Only in the gas market is there a tougher competition, because at least there is OPEC and an agreement on limiting production in the oil market. There is nothing like this on the gas market. Therefore, it remains to be expected who will be the first to leave the race, ”says Stanislav Mitrakhovich, senior researcher at the Financial University under the Government of Russia and a leading expert at the National Energy Security Fund.
Europe and Asia are abandoning American LNG for obvious reasons: the price of liquefying (and diluting) gas from the US is now higher than the price of gas on an exchange in Europe and on many Asian exchanges, an industry expert explains.
Moreover, according to him, fines are provided for buyers in many contracts for abandoning American LNG. They are trying to write everything off to force majeure so as not to pay fines, but this will still need to be proved. Perhaps in court.
“Although there are more loyal contracts. For example, there are rumors that the Poles, who have concluded an economically disadvantageous agreement to purchase American LNG, can refuse to purchase overseas fuel without fines. Their contract may have included relief in terms of “liquefy or pay”. But not everyone has that far, ”says Mitrahovich.
Those who have such concessions in the contract are an excuse to refuse American LNG faster, but it is obvious that those companies that are threatened with penalties refuse it, the interlocutor believes.
The expert expects that at least the US will postpone the new announced LNG projects. But whether the United States will reduce its current capacity for liquefying gas is an urgent question without an answer. The US Department of Energy recently lowered its forecast for domestic gas production. “However, quite large major companies that have a lot of money often contract American LNG. They can pay fines for a long time for refusing to buy LNG in anticipation of the stabilization of the market, ”says Mitrahovich.