Talks to send more US natural gas to Europe have stalled as the continent’s climate goals deter buyers from making long-term fossil fuel supply commitments, according to two US energy executives.
The US has shipped record volumes of liquefied natural gas to Europe over the past year, helping the continent avoid an energy catastrophe after Moscow cut off most of its pipeline supplies as part of the war in Ukraine.
But US gas executives say buyers have largely not been willing to commit to new multi-decade supply deals needed to underpin a fresh wave of project construction on the Gulf of Mexico that would further lift supply in the coming years.
“[European] buyers are fearful of their governments telling them they can’t buy hydrocarbons 15 or 20 years from now,” said Nick Dell’Osso, chief executive of Chesapeake Energy, one of the largest US gas producers.
“[Things] are at a bit of a loggerheads right now,” he said.
Paul Varello, chief executive of Commonwealth LNG, which is trying to secure buyers for its proposed export plant in Louisiana on the US Gulf Coast, said he was also struggling to find willing European buyers.
“Is it popular in Europe to come to Commonwealth LNG and do a 20-year deal . . . the answer is no,” he said. “Politically, it is just too close to their 2050 carbon-neutral goals.”
The long-term contracts, which can be worth billions of dollars over decades, were needed to secure funding from banks to cover the “monstrous cost” of building new LNG plants, said Varello.
Europeans are still focused on covering their energy needs for the next couple of years creating a “mismatch” between them and US LNG producers that need much longer commitments, said Jason Gabelman, an analyst at Cowen Research.
The European Commission and White House last year agreed a deal under which the US would try to send more LNG to Europe — but only until 2030. The EU aims to be net-emissions free by 2050 and wants to replace Russian gas with a huge buildout of clean energy capacity in the coming years.
European buyers have signed some deals with US developers over the past year. Poland’s PKN Orlen last month signed a 20-year supply agreement with a Texas export plant proposed by Sempra LNG and in October Germany’s EnBW expanded an existing deal with exporter Venture Global.
But those deals have not come at nearly the pace and scale many predicted last year as Europe was gripped by a brutal energy supply crisis. Nearly a year after Russia’s invasion of Ukraine, only one of more than a dozen prospective US LNG export projects has secured enough buyers to commit to building their facility.
Europe’s mild winter, which has caused a sharp fall in natural gas prices and kept storage levels at healthy levels, has further damped buyers’ appetite for long-term commitments many see as expensive and risky, given the energy transition, say executives and industry bankers.
US gas developers are instead turning their focus to potential buyers in China, South Korea, India and elsewhere in Asia where fossil fuel appetite is still expected to grow.
“While the green influence in Europe is impacting their whole philosophy, that’s not true in Asia,” said Varello. “They’re happy about the energy security and they want a good price.”
But a particularly harsh winter in the coming years could shift Europe’s stance on natural gas, added Varello.
“I heard someone say ‘give them one winter freezing their asses off in the dark, and they’ll think better of natural gas’ and I think that will be the case.”
Source: Financial Times