The top US LNG supplier says more shipments will go to Europe

Cheniere Energy, the largest exporter of liquefied natural gas (LNG) in the US, which shipped 70 percent of its production to Europe this year, said current market prices suggest volumes will continue to flow to Europe in the winter.

Orey Grindal, Cheniere’s executive vice president of global trade, told Reuters that the coming winter could be “really, really tight” due to limited global LNG supplies.

“Seventy percent of our production went to Europe this year. At current prices, the market says this should continue to go to Europe,” he said in an interview at the international Gastech conference in Milan.

Europe has become a major market for LNG, attracting huge volumes from around the world. Countries have turned to LNG as Russia, Europe’s biggest gas supplier, halted supplies following Western sanctions on Moscow over the Ukraine war.

As a result, Europe faces its worst gas supply crisis on record, with energy prices soaring and forcing both the European Union and Britain to cap prices and find ways to reduce consumption, including through rationing.

LNG prices have risen from record lows below $2.01 (€2.01) per million British Thermal Units (mmBtu) in 2020 to record highs of $57 in August. Benchmark prices are currently around $55 per mmBtu.

Recent data from Spark Commodities pricing agency for cargoes shipped from Cheniere’s Sabine Pass LNG export facility in Louisiana on a free-on-board (FOB) basis also suggests that netback forward curves are currently pricing US LNG at this point , which will be more profitable to send to Europe rather than Asia for the next 12 months.

Netback is the effective price that a producer of LNG is earning at a given point in time.

Cheniere, which has sold about 90 percent of its LNG production in long-term contracts this year and secured contracts for future production, is a flexible-target seller of LNG. This means that customers who buy LNG from the company have the freedom to sell it anywhere, and many of them choose the highest-wage markets.

A revival in LNG demand from China could contribute to Europe’s energy shortages and would fuel intense competition for the supercool fuel in an already tight market, Mr Grindal said.

“At the end of the day it’s how tight the market is going to be, how cold it is and how government policy and industry rationing work… There’s still work to be done,” Mr Grindal said.

He said signing long-term contracts is crucial for Europe to ensure uninterrupted LNG supplies.

“Without long-term contracts, we won’t take the risk of building billions of dollars worth of infrastructure,” he said.

LNG producers prefer long-term contracts, typically between 10 and 25 years, so they can manage capacity expansion commitments on capital-intensive projects and keep revenues stable. The top US LNG supplier says more shipments will go to Europe

Fry Electronics Team

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