“Peak gas” like “peak food” and “peak resources” and like all “peak scenarios” keeps getting postponed. The US is awash with shale gas and has started re-exporting LNG it had contracted for to Europe challenging the dominance of Russian supplies of natural gas.
The United States may play a role this winter in loosening Russia’s grip on the European market for natural gas by shipping liquefied natural gas across the Atlantic. Awash with domestic shale gas and with little need to import extra fuel, the United States has started re-exporting LNG cargoes, which firms had previously imported under contract, to countries where gas prices are much higher.
Such shipments could contribute to a growing pool of cheaper LNG going to Russia’s biggest export market this winter. In the longer term, U.S. plans to build plants to liquefy shale gas could create another rival to Russian pipelines. The first re-export cargo from the United States to Britain — a key access point for LNG into northern Europe via an Interconnector pipeline to Belgium — is set to sail over the weekend. “It is a landmark shipment,” said Zach Allen at NATS LNG analysts in Raleigh North Carolina. “LNG has, through the Interconnector, played a major role in reducing intake of Russian gas into western Europe.”
U.S. shale gas has already forced many LNG producers that had hoped to supply the North American market to find alternative buyers, with many cargoes ending up in Europe and driving spot gas prices below the price of oil-indexed Russian gas.
US re-exports to Europe are the latest sign that increases in shale gas production have transformed the global gas market. The International Energy Agency said on Tuesday that a decade-long period of oversupply was likely to push oil-indexed gas sellers to accept lower prices.
In February, Russian gas export monopoly Gazprom postponed it’s Shtokman LNG project because the United States, its target market, did not need more imports. Major European pipeline gas supplier Statoil has been forced to find alternative markets for LNG it had hoped to send to the United States, often selling it into Europe. Qatar, the world’s largest producer and exporter of LNG, has also pushed into both Norwegian and Russian markets by making large deliveries of cheap LNG into Britain and Belgium. US LNG imports have fallen to contractual minimums as gas prices have sagged, forcing importers whose terminals are sitting idle to change strategy and re-export to make the most of higher prices overseas.
US gas at USD 4.1 per million British thermal units (mmbtu) was about USD 3.3/mmbtu below UK prices on Tuesday and just under half the price of Russian gas in Europe in October, according to International Monetary Fund data. About 20 billion cubic feet of gas has already been re-exported from the United States this year, with some sent to Asia, where buyers have paid nearly USD 10 per mmbtu, and some to Latin America and the Middle East.
More of those US loaded cargoes could head to Britain over coming months, given that winter price increases are sharper in northern Europe than in the United States and that imports by South American and Middle Eastern buyers are usually confined to summer.
“US exports to Europe will remain rather exotic, but they underline once again the big risks for Russia of focusing some of its future projects on US markets,” said Valery Nesterov, energy analyst at Moscow-based Troika Dialog brokerage.
Cheniere Energy, operator of the Sabine Pass import terminal in Louisiana, announced plans in June to build a liquefaction plant at the terminal. It said on Tuesday that US bank Morgan Stanley hoped to secure some of its export capacity. Pending approval, the plant would export US-produced shale gas to markets all over the globe from 2015. It would be the first US LNG export plant in 40 years — following the old Kenai facility which supplies Asia from Alaska — and would be well placed to supply Europe. “LNG supplies from the United States can help lower gas prices in Europe and Asia and ultimately help lift prices in the States,” said Mikhail Korchemkin from Pennsylvania-based East European Gas Analysis.
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