Selling US LNG to Europeans requires commercial terms, speakers say

Europe’s natural gas market is evolving from politically driven projects to commercial agreements, and US suppliers will need to move more aggressively on those terms if they expect to be a substantive part of it, speakers suggested at a Mar. 22 conference.

“US suppliers have an opportunity to step in now and line up customers when prices are low. The biggest question is who will take the strategic risk,” said Mindaugus Jusius, chief executive at AB Klaipedos Nafta, Lithuania’s state oil products and gas terminal company.

“The US government did its part to start reforming policies, but US gas is owned by companies which need to start moving the conversation about liquefied natural gas in Europe from political to commercial terms,” added Amos J. Hochstein, senior vice-president for marketing at Tellurian Inc. in Houston, during the discussion on expanding global gas infrastructure hosted by LNG Allies and Our Energy Moment.

Hochstein added, however, that it will be necessary for the US, as well as Europe, to increase its gas pipeline capacity because Permian basin production associated with crude oil has risen so dramatically. “It’s at a critical point; $150 billion of new infrastructure will be needed domestically. With all the growth in the Permian, there’s not capacity to ship gas to Louisiana,” Hochstein said. “If governments in both the US and Europe aren’t willing to put infrastructure in place, real progress won’t be made.”

Magnolia LNG LLC Chief Executive Greg M. Vesey noted that it is important for more US suppliers to understand the changing customer base in Asia as well as Europe. “More traders are becoming interested. They’re in a new tier which has regasification capacity. We met several of them yesterday at a [US Trade and Development Agency] briefing in Houston,” he said.

Vasey predicted US companies will be able to compete in Europe because their prices will reflect those at the Henry Hub, which move more often with markets than gas based on contracts. “The right set of terms will make deals happen,” he said.

Goran Francic, managing director at LNG Hrvatska in Croatia, which is developing an offshore LNG import terminal that will use a floating storage unit, said that an open season to determine interest and investment will follow soon once the government makes a final investment decision in June and issues location and construction permits soon after.

‘They shouldn’t wait’

“We’re thinking of using the FSU not just for regasification, but also to bunker other projects,” Francic said. “A lot of US companies have been around in the past. They shouldn’t wait for small European national companies which would be their customers to lock capacity in during the open season. They should be there too.”

Poland Sec. of State Piotr Naimski said the first US LNG cargoes have begun to arrive at the country’s LNG terminal, but suggested that US suppliers will need to start offering more medium-term contracts to keep competitive with gas, which is arriving by pipeline from Norway’s continental shelf and North Africa. “Contracts will need to be constructed to make risk attractive to customers,” he said.

“European terminals receive almost 100 billion cu m (bcm)/year of LNG already,” said Naimski, who also is the country’s plenipotentiary for strategic energy infrastructure. “We also know that Europe is [Russian state supplier Gazprom’s] most important market, with 175 bcm/year of sales. There’s an opportunity for Eastern and Central Europe to take back what the Soviets took 25 years ago, but the Russians are very deeply rooted in the region. We are trying to create a civilized, free gas market.”

Lithuanian Energy Minister Zygimantas Valciunas said, “One dream came true when we received the first gas shipment from Poland in 2017. The Klaipedos terminal ended a 6-year Russian monopoly in the Baltic states. Gas prices immediately dropped in half. We have another dream now—steady supplies from US companies—which we hope won’t take as long.”

Valciunas said, “We now have a good mix of pipeline and LNG supplies in the Baltic states. But there is a 330-bcm import gap developing in Europe. The question is who will be there to fill it: Russia or the US?”

Valciunas said the US, which already has sanctions on Russia in place, should be prepared to use provisions in the Countering America’s Adversaries Through Sanctions Act to block the Gazprom-backed Nord Stream 2 pipeline project. Thirty-nine US senators urged the Trump administration to use that and other tools at its disposal in a letter to US President Donald Trump several days earlier (OGJ Online, Mar 15, 2018).

Contact Nick Snow at [email protected].