US LNG, Europe’s lifeline, Europe’s ‘dryer’

In the 1970s, the United States relied heavily on oil imports from the Middle East, and it was not uncommon for people to queue up for refueling. But things have changed dramatically. In 2018, the United States surpassed Russia and Saudi Arabia to become the world's largest crude oil producer. The shale oil revolution that occurred in the first decade of the 21st century made the United States a net exporter of natural gas in 2017.

After the Russian-Ukrainian conflict broke out, European countries followed the United States in imposing multiple rounds of sanctions on Russia. On September 2, Russia announced that it would close its The "Beixi No. 1" pipeline that transports natural gas in Europe has caused a shortage of energy supply in Europe, causing high production costs, soaring prices, and difficulties in business operations and people's lives. For this reason, Europe has to seek new energy supplies. Facing the current situation of surging demand, Europe still can only rely on imported energy, and has to turn to importing US-produced liquefied natural gas (LNG), which has been uncompetitive before. From 2018 to 2021, the total amount of natural gas extraction in the United States has shown a gradual upward trend, and the natural gas industry has been in a state of growth. It is expected that this growth trend will continue in 2022.

Figure 1 2018-2022 (January-November) US natural gas production volume and growth rate (unit: billion cubic meters feet, %)

Data source:US Energy Information Administration (EIA)

In order to "cheer up" its allies, the United States promised to increase liquefied natural gas exports to the EU. A large number of ships carrying expensive natural gas flocked from the United States to Europe, bringing back a lot of wealth and more political benefits to the United States. The cost of importing LNG from the United States in continental Europe averages close to $4 billion a month, placing a growing financial burden on governments and utilities. According to data from commodity data analysis company Kepler, EU LNG imports will reach an all-time high in 2022. Among them, LNG imported from the United States accounted for 41% of the total imports, a year-on-year increase of 154%. In the first 10 months of 2022, more than 60% of U.S. LNG exports will go to EU countries, and the EU will become the largest destination for U.S. LNG exports. At the same time, in the first half of 2022, the total amount of LNG exported from the United States to Europe will reach the level of the whole year of 2021.

Figure 2 2021-2022 US LNG export monthly data (unit: billion cubic feet)

Data source: U.S. Energy Information Administration (EIA)

"Forbes" magazine published an article predicting that the United States now has the world's strongest LNG export capacity and will increase by more than 40% by 2025. As a "gold mine", LNG has the potential to make the United States an "energy superpower" in the future. With the continuous increase of total natural gas extraction in the United States, the export capacity of LNG in the United States will be improved in the next few years, and the EU may also expand its imports. Given the EuropeanU.S. LNG exports are expected to continue to grow in 2023, with substantial replenishment of inventories depleted in winter. According to the prediction of relevant experts, in the next five years, the export of LNG in the United States may double.