CERAWEEK: European LNG surge raises fears in market about end-users' viability

The gigantic run-up in European LNG prices spurred by supply uncertainty amid Russia's invasion of Ukraine threatens the viability of end-users and, in turn, spot market stability, major buyers and sellers said March 7.

The reaction was striking considering the turnabout in just the last two years, with delivered prices in Europe and spot prices in Asia in spring 2020 falling below $2/MMBtu. And, now, they are assessed 30 to 40 times that level and setting new records virtually daily.

European LNG demand was strong, regasification capacity was insufficient and gas inventories were low before the war erupted in late February. The escalation of the geopolitical environment exacerbated the market dynamics.

"At this type of volatility and high prices, I begin to worry about my customers," Cheniere Energy CEO Jack Fusco told attendees during the CERAWeek by S&P Global energy conference in Houston. "You worry if they can't pass the spot price of energy through to their customers about their longevity or what is going to happen to them in the future."

The biggest US LNG exporter also had an unsettling prediction about what is next following the dizzying gyrations in LNG prices.

"I think the turbulence has only just begun," Fusco said.

Said Tengku Taufik, president and group CEO at Malaysia's Petronas, "It's bedlam, it's just chaos. There are really no fundamentals now driving it."

US LNG exporters like Cheniere are limited in their ability to mollify worries in Europe about a loss of access to Russian pipeline gas, which is the region's dominant supplier. Six major US liquefaction facilities in operation have been running at or near full utilization for months, with most cargoes flowing across the Atlantic to meet surging European demand. A seventh export terminal shipped its first cargo March 1 and is continuing to ramp up production as additional trains come online.

"We are maxed out," Fusco said about Cheniere's recent exports. "At this point, with the current price signals and the demand in Europe, there is no one holding back to produce."

S&P Global Commodity Insights assessed Platts DES Northwest Europe for April at $60.197/MMBtu on March 7. Across the Atlantic, the US FOB Platts Gulf Coast Marker was assessed at $55.900/MMBtu.

US exporters have pointed to an uptick in commercial talks over long-term supply contracts that could support new LNG export facilities.

Cheniere on March 7 announced an agreement with contractor Bechtel to build the proposed 10 million mt/year midscale liquefaction expansion at the site of its Texas export facility. A final investment decision is expected over the summer.

But leaning on LNG to help Europe reduce its dependency on Russian gas will require more than building more LNG production capacity, according to Patrick Pouyanne, CEO of French energy major TotalEnergies, who during comments at the conference called the energy crisis "a big wake up call to a lot policymakers."

Europe needs to build more regasification infrastructure on the continent to import more LNG. It also needs new contracting by end-users, Pouyanne said.

"A mix of long-term contracts and spot markets is probably better than pure spot markets," he said.

Taufik said the geopolitical and market turmoil has underscored the importance of ensuring near-term energy security to gas consumers in Asia too.

"With regards to LNG, we now have to step up to answer the shortage," Taufik said.