According to data from S&P Global Commodity Insights, Europe and China accounted for close to 40% of the US LNG supply contracts signed between 2021 and late June 2023.
Energy companies in China and Europe are competing to secure LNG shipments from the US, which is driving investment in a number of export projects that will bolster a market that may experience a supply shortage.
The US will be able to expand its export infrastructure to start supplying LNG in the next two to three years thanks to the increasing number of long-term contracts signed by European and Chinese buyers.
In order to replace the pipelined gas from Russia during the conflict, Europe has experienced a significant increase in the demand for LNG, or gas that has been cooled to a liquid state for safe storage and transportation by land or sea.
Despite pressure to switch to renewable energy to meet net zero emissions targets, demand for the gas has increased. This tightens the market and drives up prices, which happened last year.
US LNG exporter Cheniere recently agreed to a 15-year supply agreement with Equinor of Norway and a more than 20-year agreement with ENN of China.
Additionally, rival Venture Global LNG signed a 20-year agreement with German energy company Securing Energy for Europe (SEFE), and France’s TotalEnergies invested $219 million in a Texas LNG terminal being built by Houston-based energy company NextDecade.
The announcements are the latest in a long line of agreements between US exporters and European or Chinese companies.
According to data from S&P Global Commodity Insights, Europe and China together accounted for close to 40% of the US LNG supply contracts signed between 2021 and late June 2023. Due to significant volumes being signed in 2021 and 2022, China accounted for 24.4% of the total. Europe has contracted more volumes so far in 2023 than China.
For new or expanding LNG projects, these long-term purchase agreements are necessary because they underwrite the required financing.
Last year, as Europe outbid them for LNG cargoes, the pressure on LNG supplies had a significant impact on developing countries like Pakistan and Bangladesh, whose energy security was crippled.
Increased capacity, according to analysts, would also make it simpler for these countries to secure gas to replace dirtier coal in their power generation.
More volumes are beneficial for the market, and new agreements will lead to the development of more LNG export projects, according to Sindre Knutsson, Rystad Energy partner of gas and LNG research.
For emerging markets that are unable to sign long-term contracts, more supplies “can create opportunities,” he continued. This is due to elements like contract flexibility for reselling to developing countries.
However, any market easing brought on by new projects will take time. The majority of the extra US export capacity that is anticipated will not be operational until the middle of the decade.
Given their efforts to decarbonize their economies, European buyers have been hesitant to sign long-term LNG contracts. However, the contracts provided by US exporters frequently permit buyers to divert cargoes to other organisations, reducing the chance that European buyers will be forced to hold onto gas for longer than they would like.
“The European buyers are giving an additional tailwind for US projects to push towards the finishing line,” claims Michael Stoppard, global gas strategy lead at S&P Global Commodity Insights.
“Getting a portfolio of Asian and European buyers together can really help a US LNG project because it lowers the risk for them.”
Compared to a few years ago, when pollution concerns prompted the French government to step in and thwart a $7 billion deal between utility Engie and NextDecade, Europe’s interest in securing US LNG is a stark improvement.
Patrick Pouyanne, the chief executive of TotalEnergies, stated that the agreement his company had signed with NextDecade a few weeks prior “strengthened [our] ability to ensure Europe’s security of gas supply.”
Joe Biden, the US president, and Ursula von der Leyen, the president of the European Commission, announced a strategic agreement shortly after Vladimir Putin sent Russian troops into Ukraine last year. Under this agreement, EU companies would try to guarantee more demand for US LNG in an effort to encourage investment in more export capacity.
US developers are optimistic about the future of European demand. Anatol Feygin, chief commercial officer at Cheniere, recently told analysts that despite “net zero rhetoric and policy induced pressure on the demand outlook,” European LNG imports were expected to stay stable at high levels.
Regarding Asia, he claimed that the continent’s “energy evolution” and economic development would “underpin decades of growth in LNG demand,” necessitating a sizable investment in new liquefaction capacity.