US LNG saw significant growth over the past year as LNG demand grew from 3.4 Bcf/d in 2018 to nearly 9.1 Bcf/d at the end of March. This growth has occurred despite cratering LNG prices, a trade war with China, and Covid-19 impacting economics around the world. In today’s Energy Market Commentary, we examine the Europe LNG market, a crucial home for US LNG exports.
Historically, total LNG imports to Europe have been relatively low, averaging around 6 Bcf/d in both 2017 and 2018. However, imports increased substantially in 2019 averaging over 10.6 Bcf/d and reaching 13.9 Bcf/d in December 2019. That trend has continued into 2020 with total European imports averaging over 13.3 Bcf/d in the first quarter of 2020.
As total European LNG imports have grown, US LNG has gained a larger and larger share of the European market. In 2017 and 2018, the US exported less than 0.3 Bcf/d on average accounting for just 4% of total exports to Europe. This began to change in late 2018 with the US rapidly growing exports to 1.7 Bcf/d in December 2018. Since then, US LNG exports to Europe have increased by over 2 Bcf/d, overtaking Qatar as the biggest exporter to Europe. Thus far in 2020, US LNG has accounted for 30% of European LNG imports compared to just 20% for Qatar and 16% for Russia.
The growth in LNG export capacity, both in the US and around the world, has contributed to an abundance of cheap natural gas, driving down the price for potential European importers and making LNG an attractive alternative to pipeline imports (mainly from Russia). In fact, diversification of European energy supplies has been a stated goal of the Trump administration, using so called “molecules of freedom” to advance US interests through energy policy. To that end, the US signed two new export licenses in 2019 effectively doubling LNG export capacity to Europe effective in 2020.
In addition, European companies are increasingly more involved in backing US LNG export facilities, especially the facilities making up Wave 2. According to data from BTU’s Henry Hub Outlook, major European companies such as French giant Total, Polish gas company PGNiG, and Spanish energy company Repsol have signed firm offtake agreements with proposed US LNG facilities.
While Europe has become a reliable destination for US LNG, its ability to continue to absorb US cargoes is not limitless. European natural gas storage inventories currently stand over 1 Tcf above the five-year average through the end of March. European storage ended the summer injection season in 2019 near max capacity and with uncertainties around summer power burn levels due to Covid-19, the future of US LNG will ultimately depend on the focus of our next installment: Asia. For more on US LNG and how it interacts with the global market, request a sample of our Henry Hub Outlook.