Very much like a dog with a bone, or a cat with a dead mouse, I find it hard to let go of a topic that bothers me. The ambitions of the EU to replace Russian pipeline gas with liquefied natural gas is one of these topics. I briefly touched on it in my series praising the EU’s gas replacement plan but I wanted to go more deeply into it. So I spoke with some people with professional knowledge of the industry. The question I asked was the simplest possible: Can the EU replace Russian gas with LNG?
As an aging small time investor, native Texan and someone who is skeptical about the "climate emergency" which I started hearing about over fifty years ago at the onset of the Coming Ice Age, I search everywhere for writing like this: clear, factual and rational. More people need to read your great work and soon. Thank you!
Regarding the premium Europe is paying for natural gas --- just yesterday Roberto Cingolani (M5S) the Italian minister in charge of energy transition --- proposed a decoupling of electricity prices from the price of natural gas. His argument was that while in the past electric power generation depended mainly on burning natural gas - today renewables account for roughly 40% of the capacity in Italy.
I wonder if this logic will actually work out the way he expects...
In any event it would be interesting to know if this model of pegging electric power prices to natural gas prices is adopted throughout Europe...?
“ By blocking pipelines, FERC will effectively block more LNG export projects. The U.S. has seven LNG export terminals and will become the world’s largest exporter this year with the completion of a new facility. Yet many LNG projects are stalled because of pipeline constraints.”
More LNG exports will likely be a two edge sword for the US. Look at the situation we created here on the east coast of Australia. Almost everything gas producers can pump gets sent on a ship somewhere to Asia while fertiliser plants are shutting down and we now have the absurd situation where we are actually building LNG import terminals at the same time we are exporting. Simply keeping the gas for domestic use would have made much more sense and allowed more higher value manufacturing activity (the LNG projects on the west coast are different and make sense as they are in much more remote locations and a domestic reservation quota was imposed). Relocating the manufacturing plants in Europe that are about to shut down to other parts of the world would make more sense than such huge volumes of LNG.
So this happens to be a subject I know a little about.
At a macro level you are looking in the right areas and asking the right questions, but I think it paints too black and white a picture of LNG buyers & sellers... What is often invisible in the LNG industry is the activity of the intermediaries, the portfolio players and traders, and the extent to which traditional buyers and sellers are also playing in this area.
In a normal market they're optimising shipping costs and seeking arbitrage opportunities. In a situation like this - as they did post-Fukushima - they can significantly lubricate the flow of LNG to the areas of demand. Many of these redirections happen with the participation of the original buyer, i.e. even cargos that look like they're locked in to long term contracts can be made available (for a share of the profits).
This doesn't do anything to bring the cost down - clearly this is a factor of fundamental supply and demand - but it does mean that the gap to fill Europe with LNG is smaller than it looks. Can it be closed completely? I doubt it, but I think it is quite a bit smaller than you portray.
Nothing is without consequence, so the intended recipients of these cargoes need to find an alternative (likely dirtier) source of energy or, in some cases, go without. Once again, it's the poorest who suffer the most.
"EU’s desperate and extremely belated attempt to get rid of Russian gas is setting the stage for an extended period of economic doom and gloom for Europeans and European businesses"
This is scary, but then you still have companies
in the EU profiting off of Russian gas and could lose a good chunk of their profits. I'm sure they have a hard time accept the EU's non dependency move.
As an aging small time investor, native Texan and someone who is skeptical about the "climate emergency" which I started hearing about over fifty years ago at the onset of the Coming Ice Age, I search everywhere for writing like this: clear, factual and rational. More people need to read your great work and soon. Thank you!
Regarding the premium Europe is paying for natural gas --- just yesterday Roberto Cingolani (M5S) the Italian minister in charge of energy transition --- proposed a decoupling of electricity prices from the price of natural gas. His argument was that while in the past electric power generation depended mainly on burning natural gas - today renewables account for roughly 40% of the capacity in Italy.
I wonder if this logic will actually work out the way he expects...
In any event it would be interesting to know if this model of pegging electric power prices to natural gas prices is adopted throughout Europe...?
Also, this little problem. Biden is blocking the pipelines that are needed to feed any new LNG export terminals:
https://hanfordsentinel.com/opinion/editorial/editorial-pipeline-obstruction-follows-biden-executive-orders/article_5ab2e560-4d83-52b4-bb89-eb05bd702bf1.html
“ By blocking pipelines, FERC will effectively block more LNG export projects. The U.S. has seven LNG export terminals and will become the world’s largest exporter this year with the completion of a new facility. Yet many LNG projects are stalled because of pipeline constraints.”
More LNG exports will likely be a two edge sword for the US. Look at the situation we created here on the east coast of Australia. Almost everything gas producers can pump gets sent on a ship somewhere to Asia while fertiliser plants are shutting down and we now have the absurd situation where we are actually building LNG import terminals at the same time we are exporting. Simply keeping the gas for domestic use would have made much more sense and allowed more higher value manufacturing activity (the LNG projects on the west coast are different and make sense as they are in much more remote locations and a domestic reservation quota was imposed). Relocating the manufacturing plants in Europe that are about to shut down to other parts of the world would make more sense than such huge volumes of LNG.
This is a great article!! thank you for all of your writings and expertise - This is huge!
So this happens to be a subject I know a little about.
At a macro level you are looking in the right areas and asking the right questions, but I think it paints too black and white a picture of LNG buyers & sellers... What is often invisible in the LNG industry is the activity of the intermediaries, the portfolio players and traders, and the extent to which traditional buyers and sellers are also playing in this area.
In a normal market they're optimising shipping costs and seeking arbitrage opportunities. In a situation like this - as they did post-Fukushima - they can significantly lubricate the flow of LNG to the areas of demand. Many of these redirections happen with the participation of the original buyer, i.e. even cargos that look like they're locked in to long term contracts can be made available (for a share of the profits).
This doesn't do anything to bring the cost down - clearly this is a factor of fundamental supply and demand - but it does mean that the gap to fill Europe with LNG is smaller than it looks. Can it be closed completely? I doubt it, but I think it is quite a bit smaller than you portray.
Nothing is without consequence, so the intended recipients of these cargoes need to find an alternative (likely dirtier) source of energy or, in some cases, go without. Once again, it's the poorest who suffer the most.
"EU’s desperate and extremely belated attempt to get rid of Russian gas is setting the stage for an extended period of economic doom and gloom for Europeans and European businesses"
This is scary, but then you still have companies
in the EU profiting off of Russian gas and could lose a good chunk of their profits. I'm sure they have a hard time accept the EU's non dependency move.