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Reliable European demand fuels US natural gas boom


Liquefied natural gas tanker Maria Energy transports LNG produced from fracking in the United States to the LNG port of Wilhel

The liquefied natural gas carrier Maria Energy transports LNG produced from fracking in the United States to the Wilhelmshaven LNG port in Germany.

Rising demand from Europe has contributed to a boom in investment in US natural gas even as the industry struggles to overcome opposition to pipeline construction.

Fuel production hit 3.1 trillion cubic feet in October, according to the latest US data, an all-time high and up nearly 50% from a decade ago.

According to Steven Miles, a fellow at Rice University’s Banker Institute in Houston, the industry has been growing since the summer of 2021 when Russia began cutting back on shipments to Europe.

That followed the U.S. shale revolution in the first decade of the 21st century, which eventually led to the United States becoming a net exporter of the fuel in 2017.

Progress is not continuous, there is a sharp decline natural gas price investment cuts and led to the bankruptcy of one of the biggest players in the industry, Chesapeake Energy, in June 2020.

But energy companies have become more confident in the long-term demand outlook for the fuel amid changing geopolitical dynamics.

Five years ago, the long-term need was “not nearly as clear-cut as it is today,” said Eli Rubin of EBW AnalyticsGroup, a consulting firm.

“Especially after Russia invaded Ukraine, we have a healthy new respect for the role of natural gas in supplying Energy securityfor its role in helping to tame consumer prices.”

Even before the invasion, there was massive investment in facilities to convert gas into liquefied natural gas (LNG). In recent years, about 14 new liquefaction terminals have been approved, with the first slated to begin operation in 2024.

“Within the next five years, we have the potential to double US LNG exports,” Rubin said.

The boost comes as major energy companies enjoy rich cash flows thanks to high commodity prices that have allowed the industry to invest aggressively even as they ramp up share buybacks and dividends.

pipe blockage

While the growth of LNG has globalized the natural gas market to a limited extent, the drivers are still highly localized.

Prices on the benchmark European TTF contract are currently six times higher than those on a comparable Henry Hub contract in the United States.

That gap means LNG exports are priced closer to US levels, setting the stage for “middlemen” to ship goods to Europe and “sell them at European prices,” Miles said. .

Much higher U.S. natural gas exports could lead to price consolidation across regions—but perhaps not for many years.

Ryan Kellogg, a professor at the University of Chicago specializing in energy, said: “It is possible that in the long run… (the US will) export so much gas to Europe that prices between Europe, Asia, and North America become flat. more suitable”.

“But I think we’re pretty far from that right now.”

One lingering challenge the industry faces is a lack of pipeline capacity, especially in the northeastern part of the United States.

the nation’s largest nature Air basin, Marcellus Shale, mainly in Pennsylvania, faces limitations due to lack of infrastructure.

A joint venture called the Mountain Valley Pipeline is a potential solution, but the project has been suspended for the past five years due to objections from landowners and environmentalists.

Rubin said opposition by climate activists and elected officials to industry-backed projects is “certainly much stronger than in the past”.

But the lack of infrastructure can exacerbate price volatility during periods of peak demand.

New England, located in the northeastern United States, relies on LNG for partial heating.

But the area, which often experiences the coldest weather in the country, is also known to resist new pipeline capacity.

“New England is competing with Europe for spot LNG shipments,” said Rubin. “For goods to reach New England, they have to pay a higher price than Europe.”

© 2023 AFP

quote: Fuel for reliable European demand

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