As Western Europe looks to wean itself from reliance on Russian natural gas, a turn toward US supply could spark a bull-market cycle for the domestic market, lending support to developers and producers.
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In February, nearly three-quarters of US LNG exports cargoes are now destined for Europe, incentivized by high prices. At the continent's benchmark Dutch TTF hub, supply concerns have lifted prompt-month gas prices to over $26/MMBtu this month. In Feb. 24 trading, as Russia launched its invasion of Ukraine, gas prices there surged to over $37/MMBtu, data from S&P Global Platts showed.
High prices and tight supply globally have kept US LNG export terminals operating at full tilt this year. Since the start of January, feedgas demand at US terminals has averaged a record-high 12.4 Bcf/d, bolstered by new capacity at Cheniere Energy's Sabine Pass Train 6 and Venture Global's Calcasieu Pass terminal.
With current export capacity maxed out, analysts say there's little Europe can do to attract more US gas supply in the short term – absent the unlikely possibility of a new policy mandate from the US government. Longer term, though, growing security and supply concerns in Europe could spark more interest in the US as an alternative supplier.
Europe hasn't looked favorably on LNG given its heavy carbon footprint, but that could change in the wake of the current crisis, said Ross Wyeno, S&P Global Platts Analytics lead analyst for LNG Americas.
"Even before the Russia-Ukraine conflict escalated, there was already a strong uptick in contracting for US LNG exports," Wyeno said Feb. 25 by telephone.
"We were expecting three to five facilities to reach a final investment decision in 2022. Given the conflict – which is encouraging gas buyers to look for supply outside of Russia – it raises the prospect of FIDs even further," he said.
Tellurian's Driftwood LNG project in Louisiana is among the prime contenders for an FID this year, according to Wyeno. Leslie Palti-Guzman, co-founder and CEO at GasVista, also sees Driftwood as a potential candidate for FID in 2022. Earlier this month, Tellurian Executive Chairman Charif Souki said that the project would begin construction by April, regardless of the financing status for its first phase of development.
Both Wyeno and Palti-Guzman agreed that Venture Global's second LNG project, Plaquemines LNG, would also be major contender for FID in 2022.
"I think there will be new long-term contracts with European utilities following this crisis" Palti-Guzman said Feb. 25 by telephone. "The discussions had already started this summer, but it could take more time to finalize those deals."
While the US gas market could remain largely insulated from the Russia-Ukraine conflict over the short term, new supply requirements in Europe might shift the market environment for domestic producers longer term, especially as the global market ups the call on flexible suppliers like the US.
"There's been so much pressure on green gas and ESG and there's been a kind of wait-and-see approach on what the Biden administration will do," Palti-Guzman said.
After approaching a prior record high in December, US gas output has stumbled into the new year, despite strong demand for new drilling and production.
In late 2021, US output briefly topped 96 Bcf/d but tumbled precipitously in early January and has since suffered a series of setbacks from freeze-offs in the Permian Basin, the Denver-Julesburg, the Bakken and Appalachia. On Feb. 25, production was estimated at just 91.9 Bcf/d, Platts Analytics data showed.
Tight supply in the upstream has been magnified by flagging storage levels this winter. In its latest report, the US Energy Information Administration estimated US inventory at 1.782 Tcf as of the week ended Feb. 18 – a nearly 215 Bcf deficit to the prior five-year average, EIA data showed.
The shortfall in domestic supply has lifted benchmark US gas prices into the $4 to $5 range for much of this winter – a strong price signal that historically would have triggered an increase in shale production which has failed to materialize this time around .
"The market signals are there," Palti-Guzman said. "If investors want to come back and back up US shale gas, there's plenty of it there."