Executives claim that buyers fear long-term supply agreements will be in conflict with carbon neutral targets.
Two US energy executives claim that talks to send more US natural gasoline to Europe are deadlocked because buyers are discouraged by Europe’s climate goals.
The US has shipped record amounts of liquefied gas to Europe in the last year. This helped the continent avoid an energy crisis after Moscow cut off its pipeline supply as part of the war with Ukraine.
However, US gas executives claim that buyers have not been willing to sign new multi-decade supply agreements to support a fresh wave of construction projects on the Gulf of Mexico which would increase supply over the next few years.
“[European] buyers fear their governments telling them that they can’t purchase hydrocarbons in 15 or 20 years,” stated Nick Dell’Osso chief executive at Chesapeake Energy. This is one of the largest US gas producers.
He said, “Things are at a bit more of a loggerheads now.”
Chief executive of Commonwealth LNG Paul Varello stated that he is also trying to find European buyers for the proposed plant.
“Is it common in Europe to visit Commonwealth LNG and make a 20-year agreement? . . He said that the answer was no. It is too close to their 2050 goals of carbon-neutrality.
Varello stated that the long-term contracts can be worth billions over the years and were necessary to secure financing from banks to pay for the “monstrous costs” of building new LNG plants.
Jason Gabelman, an analyst with Cowen Research, stated that Europeans remain focused on meeting their energy needs over the next few years, creating a “mismatch”, which would lead to a much longer commitment from US LNG producers.
Last year, the White House and the European Commission reached a deal in which the US would send more LNG to Europe. However, this agreement was only valid until 2030. The EU wants to eliminate net emissions by 2050, and will replace Russian gas with large amounts of clean energy in the next few years.
Over the past year, some European buyers have made deals with US developers. Last month, PKN Orlen in Poland signed a 20 year supply agreement with a Texas export facility. In October, EnBW in Germany expanded an existing deal it had with Venture Global.
These deals have not been completed at the same pace or scale as predicted, since Europe was engulfed by an energy crisis. Only one of the potential US LNG export projects, out of over a dozen, has been able to secure enough buyers to build their facility almost a year following Russia’s invasion Ukraine.
The mild winter in Europe has led to a sharp drop in natural gas prices, but has kept storage levels healthy. This has further slowed buyers’ desire for long-term commitments that they see as risky and expensive, especially given the energy transition, according to industry bankers and executives.
Instead, US gas developers are focusing on potential buyers in China and South Korea, India, and other Asian countries where fossil fuel demand is still expected to grow.
Varello stated that while Europe’s green influence is affecting their entire philosophy, it is not the case in Asia. They are happy about energy security, and they want a good deal.
Varello said that Europe could be affected by a particularly severe winter in the next years.
“I once heard someone say that if you give them one winter of freezing their bodies in the dark, they will think more favorably about natural gas.” I believe that this will be true.