The US is describing its growing LNG exports as “freedom gas”, giving America’s allies “a diverse and affordable” clean energy source, but prices, not politicians, will decide where that LNG flows.

The message about diversified supplies plays particularly well in Europe, where the European Commission wants to ensure dominant gas supplier Russia faces credible competition across all markets, not just at the developed hubs in the northwest.

Russia’s planned 55 Bcm/year Nord Stream 2 gas pipeline project to Germany has drawn criticism from both the US and the EC. They argue that it undermines Ukraine’s role in transiting Russian gas and does not diversify supplies.

The US Department of Energy is doing what it can to enable “molecules of US freedom to be exported to the world,” assistant secretary for fossil energy Steven Winberg said on May 28 as he approved extra exports from the Freeport LNG terminal.

The EC, meanwhile, sees the recent surge in US LNG to Europe as evidence that last July’s trade relations meeting between US President Donald Trump and European Commission President Jean-Claude Juncker has paid off.

US LNG imports to Europe rose 272% in the nine months after that meeting, reaching a record 10.4 billion cubic meters in total by late April, the EC said ahead of a high-level US-EU energy forum in Brussels in May to promote US LNG.

This US LNG was part of a wider wave of LNG into Europe during this period, as a narrow price spread with Asian LNG made Europe often the most profitable destination.

But these favorable market conditions started to change in May, showing clearly that it is prices, not politicians, that drive global LNG flows.

By the third week in May the UK NBP June and July contracts had both fallen below 30 pence/therm – around $3.8/MMBtu.

Meanwhile the JKM – the benchmark for LNG spot delivered into southeast Asia – was assessed at $4.263/MMBtu on June 3. This is the lowest assessed price for the JKM contract since April 2016, S&P Global Platts price data showed.

This put both the JKM and NBP prompt prices largely in line with the cost of delivered US LNG into their respective markets, and coincided with a fall in LNG demand in Europe.

The result was that US LNG exports to Europe dropped 37% in May on April to 673 million cubic meters of natural gas equivalent, while its exports to the rest of the world rose 13% to 2.20 billion cubic meters.

Total LNG imports to Europe fell 19% in May on April to 7.6 Bcm, reflecting a 42% drop in French demand because of LNG import terminal maintenance, and also a 14% drop in UK demand.

US open for business

Politicians were not involved in creating these market conditions, but the US has started fast-tracking long-term export authorizations for LNG terminals.

US energy secretary Rick Perry signed two such authorizations on the sidelines of the US-EU meeting in May, one for Tellurian’s 27.6 million mt/year Driftwood in Louisiana and the other for Sempra Energy’s 11 million mt/year Port Arthur in Texas.

Tellurian co-founder Charif Souki told the US-EU meeting that the US could be injecting about 145 million mt/year or 197 Bcm/year into the global market by 2025, and Europe’s flexible gas market, which includes some 100 Bcm of storage, could absorb a significant part of this.

Trump even gave EC vice-president for energy union, Maros Sefcovic, a lift in Air Force One to attend the start of production from Sempra Energy’s Cameron LNG export terminal in Louisiana in mid-May, showing just how keen the US is to promote its LNG in Europe.

Neither Trump nor Sefcovic are determining where the LNG goes once it leaves the US, however, and the unusually flexible nature of US LNG contracts is helping to create a global, commoditized spot market with lower barriers to entry.

The US is now exporting LNG to 35 countries, more than double the number before Trump become president, according to the US embassy to the EU.

Finding a pricing mechanism that works for US LNG producers, their project bankers and potential European buyers was a key theme at the Brussels meeting, with calls for a specific European LNG benchmark, similar to the JKM.

Go deeper: Podcast – S&P Global Platts looks at the future pricing options for US LNG

For now, US LNG exports to Europe remain very low as a proportion of total gas imports, despite the huge relative growth. By early May this year Europe had imported 4.4 Bcm of LNG from the US, already more than the 4.3 Bcm it imported in the whole of 2018, according to data from S&P Global Platts Analytics.

This is still a tiny amount compared with Russia, which sent 200 Bcm of pipeline gas and 10 Bcm of LNG to Europe in 2018.

By early May, Europe had already imported 6.6 Bcm of Russian LNG – more than from the US – as well as 37 Bcm of pipeline gas, the Platts Analytics data showed.

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