Global Energy Giants in a Fierce Battle to Secure Lucrative LNG Deals from the US

US: Competition is heating up between European and Chinese energy companies to secure liquefied natural gas (LNG) shipments from the United States, leading to increased investment in export projects. This has resulted in a growing number of long-term contracts being signed by buyers in Europe and China, thereby helping the US to enhance its export infrastructure. This would inevitably lead to an increase in LNG supply within the next two to three years, thereby mitigating the potential shortage of supply in the market.

Despite the push to transition to renewable energy to achieve net zero emissions targets, there has been a surge in demand for liquefied natural gas (LNG) in Europe, which is converted into its liquid form for safe storage and transportation by sea or road. This surge in demand has been particularly evident during the conflict in Ukraine as the region strives to replace gas that was previously supplied by Russia through pipelines. As a result, the market for LNG has become increasingly tight, leading to price surges over the past year. Recently, US-based LNG exporter Cheniere has signed a 15-year deal to supply Norway's Equinor and a contract exceeding two decades with China's ENN. Furthermore, Venture Global LNG, a competitor, has secured a 20-year agreement with Germany's Securing Energy for Europe (SEFE), while France's TotalEnergies has acquired a stake worth $219mn in a Texas terminal that will transport LNG being developed by NextDecade, an energy group based in Houston.

Over the past years, there has been a consistent flow of deals between US LNG exporters and entities in Europe or China. These two regions have accounted for almost 40% of the LNG supply contracts signed by the US from 2021 to late June 2023, with China making up 24.4% due to the high volume of agreements made in 2021 and 2022. However, this year, Europe has procured more volumes than China. These long-term purchase contracts are crucial for the development of new or expanding LNG projects as they provide the necessary financing.

The shortage of LNG supplies had a significant impact on the energy security of developing nations like Pakistan and Bangladesh last year, as Europe outbid them for LNG cargoes. Analysts suggest that with increased capacity, these countries will have an easier time securing gas to replace coal in their power generation, which is a cleaner alternative. Sindre Knutsson, partner of gas and LNG research at Rystad Energy, believes that the new deals will lead to more LNG export projects being developed, increasing the volumes available in the market. This is beneficial as it can create opportunities for emerging markets that cannot commit to long-term contracts, owing to factors such as the flexibility of contracts to resell to developing nations.

It will take some time for the market to loosen up from new projects. Although most of the planned additional US export capacity is expected to come online by mid-decade, European buyers are hesitant to sign long-term LNG deals as they strive to decarbonize their economies. However, contracts offered by US exporters often allow buyers to divert cargoes to other entities, reducing the risk for European buyers of being stuck with gas for longer than intended. This has provided an additional push for US projects to reach the finish line, as a portfolio of Asian and European buyers can help reduce the risk. This marks a significant shift from just a few years ago, when pollution concerns led the French government to intervene in killing a $7bn deal between utility Engie and NextDecade.

TotalEnergies CEO Patrick Pouyanne has announced that the deal signed between his company and NextDecade will help to further ensure Europe's gas supply security. In response to the deployment of Russian troops by Vladimir Putin in Ukraine last year, US President and European Commission President Ursula von der Leyen struck a strategic agreement. Under this agreement, EU companies will work towards guaranteeing more demand for US LNG to boost investment in export capacity. Despite net-zero rhetoric and policy-induced pressure on demand outlook, US developers remain confident of enduring demand for LNG in Europe. According to Cheniere's Chief Commercial Officer Anatol Feygin, European LNG imports are predicted to remain stable at high levels. Meanwhile, speaking about Asia, Feygin stated that the region's economic growth and evolving energy needs will drive decades of growth in LNG demand, leading to a need for significant investment in new liquefaction capacity.