US LNG sector to pitch gas deals for Europe

A senior EU official overseeing the bloc's energy policy is set to meet next week with US LNG industry insiders, who say recent tensions with Russia add relevancy to their efforts for customers in Europe to sign deals for new liquefaction capacity in the US.

EU energy commissioner Kadri Simson is set to meet with those industry officials during a visit next week to Washington. Simson and EU foreign affairs commissioner Josep Borrell will attend a meeting of the US-EU Energy Council on 7 February, as Washington has engaged LNG producers in the US and abroad to ensure that a sufficient volume of Europe's natural gas imports from Russia can be replaced with alternatives.

US gas industry officials in their meeting with Simson will say long-term contracts for new US LNG projects would help Europe improve its energy security, citing the ongoing Russia-Ukraine crisis.

"Gazprom is not wrong that perhaps the EU relied too heavily on spot contracts, which is why prices have been as high as they have been," industry group LNG Allies chief executive Fred Hutchison said. "But the next step is not to sign long-term contracts with Russia, it is to sign long-term contracts with other parties. Well, we have got a bunch of parties with projects ready in the US."

At least in terms of policy rhetoric, the US LNG industry may be preaching to the choir. The EU must find a way within existing legislation to "see that fixed price contracts for longer periods are available" and look for alternative sources of gas supply, Simson told the European Parliament's Industry, Research and Energy Committee on 2 February.

"I am also engaging with partners to explore a possible expansion of supply, in particular LNG," she said. Simson's visit to Washington follows a trip to Qatar and a planned visit to Azerbaijan.

Officials in Doha told Simson on 1 February there is little chance that Qatar would be willing to break its existing LNG supply contracts, mostly with customers in Asia, to ensure Europe has enough gas in the event of any Russian supply disruption.

Replacing the 360mn m³/d of Russian gas supplied to Europe in 2021 would require about 8.4mn t/month of LNG — roughly a quarter of global LNG output last year.

A dozen US LNG projects, consisting of new facilities and expansions capable of liquefying more than 21 Bcf/d of gas, have won approval from the US Federal Energy Regulatory Commission (FERC) but have yet to reach final investment decisions. US LNG developers have spent years courting European companies and officials with a pitch highlighting concerns about Russia, as they sought to sign enough long-term supply deals to secure financing.

Those efforts had mixed results with European utilities. Poland's PGNiG has signed long-term deals with US exporters Sempra Energy, Venture Global and Cheniere, largely to reduce reliance on Russian pipeline supply. France's Engie began talks on a possible supply deal but ended it in 2020 because of concerns with methane emissions, at a time when former president Donald Trump eliminated any direct federal regulation of methane.

With President Joe Biden in office, LNG industry officials say gas producers are cutting emissions and now support methane regulations. "We are more than getting our act together on methane," Hutchison said.

Industry officials say the Biden administration has limited near-term ability to add more cargoes to the global market, since US LNG facilities are already running above nameplate capacity and reached record loadings last month. US LNG exports are likely to grow this quarter with the expected start-up of a sixth 5mn t/yr liquefaction train at Cheniere's Sabine Pass facility in Louisiana and potential first loading from the 10mn t/yr Calcasieu Pass terminal, also in Louisiana.

The earliest chance for the US to add capacity beyond that is a pending request to "uprate" the existing Freeport LNG in Texas facility to process an extra 240mn cf/d of gas, along with a design tweak adding 57mn cf/d of liquefaction to Calcasieu Pass. But the environmental review and approval of those requests is not scheduled to be done until this summer at the earliest.

Even so, US LNG officials say the Biden administration could do more to provide assurances to the industry. Top administration officials already calmed industry nerves by saying a "ban" on LNG exports was not on the table, but the industry wants more assurances from the US Energy Department there are no plans to modify existing contracts. Industry group the American Petroleum Institute last week urged the administration to "guarantee" the permitting process will remain clear and consistent.

By Chris Knight and Haik Gugarats