Trump's US gas disrupters
American LNG exporters are already reshaping Europe's gas markets. Will the country's new government accelerate the transition?
Jack Gerard, head of the US' largest oil lobbying group, the American Petroleum Institute (API), has urged new energy secretary Rick Perry to make liquefied natural gas a priority. Opportunities await American LNG exporters across the Atlantic, the API believes, and it wants Donald Trump to help blow some wind into the tankers' sails.
Perry looks likely to heed Gerard's advice and grant new LNG-export licenses. But the truth is that the emergence of US LNG as a global force predates Trump's election. The rapid rise of domestic shale output has underpinned all this - Cheniere Energy was the first to capitalise, launching exports from its Sabine Pass plant in Louisiana last February. The pace of US exports should now rise swiftly: four further terminals should begin shipping gas between 2017 and 2020.
When all five terminals under construction are operational in 2021, the US will be the world's third-largest LNG exporter, behind Australia and Qatar. If Perry's energy department allows unfettered export approval to even just a small number of the other proposed liquefaction plants, US LNG-export volumes could top the chart by 2025. Export projects require special energy department approval to ship gas to countries that haven't signed free-trade deals with the US. Project developers have put a total of 50bn cubic feet (cf) a day (380 million tonnes a year) in proposed export capacity before regulators.
This has big implications for Europe, a target for these exports. Russian gas giant Gazprom now admits that competitively priced US LNG exports could threaten the country's position in the European gas market. Valery Golubev, Gazprom's deputy chief executive, said recently that the obvious source of rivalry to Russian pipeline gas would come from America, adding that he expected the Trump administration to boost its production.
Trump pledged to cut federal regulation. It's no leap of faith to assume this will see a fast-tracking of approval for LNG projects
This is a reversal by Gazprom. The company long dismissed the threat of US LNG, arguing that sailing it across the Atlantic would make it costlier than Russian piped gas. That's no longer the case, and the established exporters to Europe are rattled. Russia, Norway and Algeria have all been supplying consistently higher volumes to Europe for two years. Russian exports to Europe and Turkey hit an all-time high of 6.36 trillion cf in 2016, while Norway's supplies to Europe, mainly the Netherlands and UK, came in at record levels of around 4.06 trillion cf.
And that was before Trump. Under the Obama administration, LNG exports and the construction of export facilities went through a strict permitting process. But Trump has pledged to cut back on federal regulation to promote the domestic oil and gas industry. It's no leap of faith to assume this will see a fast-tracking of approval for LNG projects under review by the Federal Energy Regulatory Commission, including the Gulf LNG, Calcasieu Pass, Texas LNG, Annova LNG and Rio Grande LNG projects along the Gulf coast.
How much of this LNG will end up in Europe? The problem facing sellers is that Gazprom, whose pipeline deliveries captured a record 33.5% of Europe's gas market last year, can match the US on price and is unlikely to relinquish market share without a fight. Trump's apparently close relationship with Russia's President Vladimir Putin might also be a factor in any strategic effort by the US to encroach on Gazprom's main market.
Another reason why sellers remain cautious is that 2016 was decidedly underwhelming for trans-Atlantic US LNG exports. Stubbornly low European spot prices meant few cargoes headed for Europe despite the relatively short shipping route and Europe's massively underused LNG-import capacity. Instead, most of the cargoes that left Sabine Pass went to Chile, Mexico and Brazil. Now, many cargoes are headed to Asia via the Panama Canal, an arbitrage trade making the most of higher spot prices in the region. Asian LNG prices have recently jumped to around $10 per million British thermal units.
In total, just three US LNG cargoes landed in mainland Europe last year - one in Portugal, one in Spain and one in Italy. Two other shipments went to Turkey. The abundance of pipeline gas means that few cargoes are likely to arrive in the first half of 2017 either. Meanwhile, US natural gas prices are expected to rise this year and next, according to the Energy Information Administration's short-term energy outlook, potentially hurting US LNG-export competitiveness.
But the impact of American LNG in Europe can be virtual as much as physical. Even if the volumes sent from the US Gulf to terminals in the continent don't surge in the coming months, their presence will still be felt. Most of all, the potential for US LNG to arrive in Europe should cap prices at key European gas hubs like the UK's National Balancing Point and the Netherlands' Title Transfer Facility. This would represent a major shift in gas-market dynamics and would in effect mean that there is a direct pricing link between US shale gas production and the European market. As long as American supplies keep rising, the spectre of cargoes arriving in Europe will hang over the continent's market - and its established pipeline suppliers.
On the up: US LNG export capacity (bn cf/d) Source: Company data, Petroleum Economist