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- The United States leads in LNG exports, but Qatar’s plans to double its output capacity by 2030 pose a major competitive threat.
- Investors are becoming hesitant to commit to long-term LNG deals due to concerns about future market oversupply and shifting demand.
- Europe’s LNG imports have declined, with increased imports from Russia despite sanctions, indicating that price is a significant factor in purchasing decisions.
The new U.S. federal government, unlike the last one, is a big fan of liquefied natural gas. It is an even bigger fan of cementing the country’s top position as LNG supplier to the world. Yet while this may seem easy enough, it is actually fraught with challenges. The two biggest ones: cost and competition.
Last year, the United States exported 88.3 million tons of liquefied natural gas, according to data from LSEG reported by Reuters earlier this year. The annual total was a healthy 4.5% increase over 2023 and proof that the U.S. once again beat Qatar and Australia as the biggest supplier of the commodity globally. Further growth, however, will be more difficult because while Australia may be fine with its current position, Qatar has some major ambitions—and these ambitions cost billions.
The ambitions in a nutshell: Qatar wants to double its LNG output capacity by 2030. This means much stronger competition for new U.S. terminals that will be coming on stream in the next few years—if they find investors to shoulder the upfront costs. U.S. LNG developments are private affairs and the developers need offtake commitments from future clients in order to be able to get the loans to finance the construction. QatarEnergy does not have this particular problem being a state entity. And it seems that LNG buyers are getting wary of making such commitments.
The Wall Street Journal reported this week that competition is emerging as a potential risk for U.S. LNG dominance, citing a Pinebrook Energy Advisors managing partner as saying that energy investors had grown reluctant to commit to long-term take-or-pay deals with LNG developers, unsure where demand will be in a decade or more.
“There needs to be the demand for it, and there needs to be assurance that if you’re going to enter into this extremely capital-intensive construction project, you’re not going to be left holding the bag if the global market is suddenly oversupplied in 10 years,” Andy Huenefeld told the WSJ. It is a good point to make because it may already well be forgotten that less than 10 years ago, the LNG market was in a sizable glut that had pushed prices so low that the European Union decided to ditch long-term deals on all gas and play on the spot market.
Right now, there does not appear to be a risk of a glut developing anytime soon. Demand for gas internationally is strong and likely to become even stronger—for the right price. Qatar can ship LNG to closer destinations cheaper than it would be to ship U.S. LNG there. This makes the Middle Eastern energy major a formidable competitor, and it is not the only one.
Europe’s LNG imports last year slumped by 19%, climate outlet the Institute for Energy Economics and Financial Analysis reported this week. The authors attributed the decline to the growing deployment of wind and solar, but in fact, it was all about prices. Because while imports from the U.S. declined, imports from Russia, sanctions and all, increased.
LNG imports from the United States dropped by 18% last year, the IEEFA said in its report, although the total still represented a solid 46% of all European LNG imports. LNG imports from Russia, despite numerous calls for a ban on these, rose by 12% for the whole of Europe, and by a higher 18% for the European Union alone.
Given the attitudes demonstrated by EU political circles towards Russia, there could be only one reason for such a development: price. Russian LNG takes less time to reach Europe. It is cheaper than the U.S. LNG crossing the Atlantic to get to its European destination. Sometimes things are exactly as simple as they seem.
The above does not mean Europe is going to quit American LNG anytime soon, even as tensions with the Trump admin run high because of differing agendas about the Ukraine situation. If nothing else, Europe needs the diversification of supply. Also, European leaders may be mad at Trump for his decision to negotiate peace directly with Russia, but they probably don’t want to anger Trump by switching LNG suppliers. That would be one wrong step too many.
Indeed, forecasters see total U.S. LNG export capacity growing significantly in the medium term despite that new wariness among investors. The WSJ cited Morgan Stanley analysts as expecting LNG export capacity to grow almost twofold by the end of the decade, by some 11 billion cu ft daily. They also expect between 4 and 5 billion cu ft in additional natural gas demand from LNG facilities thanks to the revocation of the Biden pause on new LNG terminal approvals. That additional demand would be coming on top of current demand levels of some 15 billion cu ft, per S&P Global data.
It remains to be seen whether all this additional capacity will indeed be built in light of the cost and competition challenges. One thing, however, is certain. Demand for natural gas is not going anywhere except higher.
By Irina Slav for Oilprice.com
The post U.S. LNG Exports Surge But Long-Term Growth Uncertain appeared first on Energy News Beat.
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