American gas moved to the shores of Europe

The rules of the game in replacing Russian gas in the European market are being studied by the editor of the business department Yuri Barsukov

Cheniere, the largest U.S. LNG producer, filed with the federal Energy Regulatory Commission late last week to expand its plant in Corpus Christi. The construction of a new line for 3.3 million tons should start in the fall of 2024, and commissioning – in 2029-2030. This application may actually be the beginning of the fourth wave of expansion of LNG projects in the United States, which was triggered by ultra-high gas prices in 2021-2022, and Europe, which has lost Gazprom’s supplies, is seen as the target market. Cheniere said in February that it was going to submit another application to regulators before the end of the year – to increase the capacity of its Sabine Pass plant by 20 million tons per year with commissioning in the early 2030s.

Unlike a number of other announced projects (for example, Alaska LNG), Cheniere has a significant advantage – it is a major player that can, if necessary, finance new projects itself, which, moreover, are located on the same sites as existing plants and have access to existing infrastructure

In fact, Cheniere’s main competitors now are other new U.S. LNG projects, which have progressed remarkably slowly over the past two years, given that world prices have broken historical records. Thus, in the United States, only two investment decisions were made in 2022 (Venture Global for 13.3 million tons and the third phase of Corpus Christi for 11.4 million tons). Four more projects have postponed investment decisions to 2023, and in two cases – Driftwood LNG and Rio Grande LNG – some lenders and long-term gas buyers have already left them.

The main problem is the conclusion of long-term contracts for LNG, without which projects in the US cannot attract funding.

During the previous waves of expansion of the American LNG industry, Asia was the main sales market – primarily China, with which it was not difficult to sign contracts for a period of 20 years. However, now that Chinese companies have stopped entering into new contracts for American LNG, and Europe should become the main market for it, it turned out that European consumers are not ready to sign long-term agreements, especially at current high prices.

EU energy companies are forced to take into account the extremely ambitious decarbonization plans adopted by politicians, which were not formally canceled despite the energy crisis in 2022: according to these plans, by 2025 gas consumption in the EU could fall by 40% compared to 2021 levels.

Years of aggressive anti-fossil fuel propaganda from Russia is now making it harder for the European Commission to explain the benefits of American LNG, oil and coal: they cost more and are rumored to emit the same amount of carbon dioxide when burned as their barbaric Russian counterparts.