US LNG exporters against the low-cost producers
By Michael McDonald, Oilprice.com:
Oil and natural gas producers cannot catch a break of late it seems. A few years after the onset of the natural gas glut, Europe is experiencing a similar phenomenon with Russia and Norway using tactics akin to those used by the Saudis with oil.
The result is rock bottom prices on natural gas that are benefiting utility companies across the continent. The effective result of these actions is also hitting LNG terminal development economics in the U.S. and minimizing growth of imports from Qatar.
In a remarkable development, gas in the UK has fallen 37 percent in the last year just as Cheniere Energy has started offering exports of U.S. LNG to Europe. While Russia and Norway both deny specifically targeting market share through their business approach, it is clear that national firms in both countries are low cost producers that are proving to be the last men standing as prices continue to tumble.
Neither country’s producers need to take specific actions to drive market share – all they have to do is be willing to sell at the market’s defined prices and as those prices fall, natural volume declines from other producers leads to increased share.
While there are still geopolitical reasons to avoid buying Russian gas, increasingly European firms are finding themselves choosing between a more expensive but politically palatable supplier in the form of the U.S., and the cheaper Russian suppliers. This dichotomy is becoming increasingly untenable for many buyers who would otherwise prefer to buy from the U.S.
The problem for Russia of course is that its market share is only sustainable so long as it gives up its leverage on natural gas both politically and in the form of price. As soon as Russia seeks to exploit its position as a supplier, buyers may turn to the U.S. again. In that sense then, contestability of the market and the threat of entrants matters as much as actual competition in the market.
Despite the fall in natural gas prices, Europe as a whole should be cheering. Not only does the cheaper gas provide a much needed economic boost (albeit a small one) in nations like Greece, but it also provides a route to decreased carbon emissions over time. Much of the decrease in carbon emissions in the U.S. in the last decade has come from increased adoption of natural gas rather than use of coal. Yet natural gas users are rarely using the fuel for environmental reasons. Instead they are making a rational economic choice based on prices.
Europe may follow this same path. As natural gas prices collapse, coal-fired power plants in Germany will have increasing reason to convert to natural gas. Similarly, France’s long heralded nuclear industry will probably face significantly higher economic barrier to the construction of new nuclear plants.
None of this is driven by environmental concerns, but rather by companies seeking to maximize profits by minimizing cost through the use of cleaner burning (versus coal) and potentially safer or at least less controversial (versus nuclear power) natural gas. This scenario is what played out in the U.S. a decade ago, and now it appears to be repeating in Europe. Investors should take note. By Michael McDonald, Oilprice.com
In the US, coal was the dominant fuel for power generation for decades. But now coal mining companies are pushed into bankruptcy, hounded by a slew of problems. Their two biggest problems are based on technological innovation. Read… This Chart Shows the Collapse of “King Coal” by State, and Why Miners Are Going Bankrupt
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Price aside, I’m not convinced either, that Europe prefers American shale gas over Russian gas, perhaps the other way around, if anything?
Wouldn’t surprise me if US government offered shale gas free of charge and Europe still refused, this in spite of the homeless and hungry US families who could use long-term employment, our Congress would prefer to issue debt for building moar warships.
The idea that somehow we have evolved and become civilized is true only insofar as used for propaganda purposes. Human relations have been and continue to be guided simply by balance of power, or in other words brute force. In such a situation, whoever has the bigger guns, masters the situation and makes the rules.
US is right to spend so much money in building might beyond doubt as any weakness will allow for powers like China and Russia to assert their dominance. Given history, I would rather live in a world dominated by US than other countries.
“US is right to spend so much money in building might beyond doubt”
It’s a huge waste IMO, I believe it’s consuming far more than any benefit.
On the other hand, there’s plenty of profit if you’re selling weapons or are into state-sanctioned armed robbery, especially if you can get taxpayers to pony up a couple of trillion every year.
Correct, it is a waste, but so is all planning for a black swan event. On the other hand you can build a tremendous prosperous society and be rich, ignore defense and get annihilated by the first modern Gengis Khan army that happens to pass by.
Section: please use IMUI (in my uninformed opinion) in place of IMHO
Repeat that when you are looking down the barrel of a AK47
I prefer the 7.62, then what is hit, tends to stay down.
I have seen AK 47 chambered to take 7.62 x 54 Kick like a mule, but awesome to use.
memento mori: I would rather live in a world dominated by US than other countries.
I think it’s safe to assume that you profit from U.S. domination and have never been the target of U.S. genocides: Native Americans, Vietname, Guatemala, Iraq. You might like to take that into account if you someday become inclined to consider the opinions of other countries.
You cant give credit to the weak for not using force.
The weak cant be sincere.
In order to criticize the US world domination, imagine a world dominated by those countries you mentioned, and compare the outcomes.
Currently they are weak and shamelessly brutalize and impoverish their own people, I doubt they will have mercy for the foreigners if they were strong.
memento mori: imagine a world dominated by those countries you mentioned
So far as I’m aware, Native Americans, Vietname, Guatemala, and Iraq have no interest in conquering the world.
memento mori: Currently they are weak and shamelessly brutalize and impoverish their own people
You’re mistaking Native Americans, Vietname, Guatemala, and Iraq for the U.S., which is famous around the world for brutalizing and impoverishing Native Americans, Vietname, Guatemala, and Iraq.
You have not paid enough attention to the Armenian genocide, Nazi holocaust, USSR forced collectivization of agriculture; China forced collectivization of agriculture, Pol Pot, Rwanda genocide, WW2 Japan in Korea & China, or the Australian 1823-1834 bounty on Aborigines .
You have a point with native Americans, but the rest of your stuff is drivel. Won’t even attempt a distinction between genocide & war…
Rave on, dude.
memento mori: Human relations have been and continue to be guided simply by balance of power, or in other words brute force.
[[sentence deleted by Wolf]]
I had states in mind, but if you want to take it to micro level, I stand by what I said, balance of power is the key, and it is the balance of power that makes your family works as well as evth else at micro level. Brute force being the final expression of power ascertainment, which you dont get to use it in daily life personally as it is embodied in our courts and state institutions.
Wow! Super clever use of ad hominem to disguise your intellectual vacuum. Especially the bit about the wife and family – good stuff coming from someone not posting a real name.
You just flunked (yet another) adult test – go back to mom’s basement.
I deleted that sentence in the comment of “this one.” Sorry it slipped through long enough.
Well that was certainly a reasoning & fact-free diatribe.
US gas is LNG; liquified and transported at a very cold temperature. Russian gas to Europe will just be piped- there is no way the former can compete on price. You would also have to beware of building the very expensive terminals to prepare the gas based on politics, and then the situation changes.
At the present rate Putin needs a deal. Angela Merkel could pull a rabbit out of a hat by delivering one.
As much as I’m not a fan of Putin and his gang, it is ridiculous to go into a new cold war ( which always has the possibility of going hot) over Crimea.
A drunken Kruschev ‘gave’ it to Ukraine- it was Russian before.
To resolve this- how about a German-French conducted plebiscite in Crimea with a simple question: Do you want to be in Russia or Ukraine?
Am I correct in assuming USA LNG investments were in the pipeline (sorry about that) before fracking took off?
Or is there an actual LNG business case with $60-80 oil?
Energy security justifys the US and other import terminals, and yes, it was in the “pipeline” when the oil was higher.
Japan is still in dispute with Russia over the Historically Japanese Islands, Russia occupied, And still occupies, in breach of its agreement with the US, in 1945.
Yet Japan buys Shipped LNG from Russia, as the US could not supply. At the time.
What price does energy security justify??
I know that Alberta had huge gas reserves before fracking- it was an often unwanted by product of oil drilling.
You might not hit oil but in some areas always gas.
At one time in a former price crash there were thousands of wells capped.
It is a mystery to me how coal survived when this relatively clean fuel is so abundant.
“It is a mystery to me how coal survived when this relatively clean fuel is so abundant.”
The same reason GM was bailout in a deal that cost the US taxpayer 10 Billion $ in stock losses, as O bummer always knew it would, leftist union and political cronyism.
No money changed hands directly, but a lot of people got paid off in the deal
Re: GM bailout- it was signed by George Bush just before leaving office- it had filed for bankruptcy during his tenure.
There is video of Bush saying he signed because he didn’t want Obama to have a crisis ‘his first day on the job’
Which is nice- but the whole set of crises had nothing to do with Obama, who was simply handed the worst mess since 1929.
Just a reminder to all Americans who may have forgotten their dates- Obama became President in 2008- the crash had begun.
Technically speaking, Obama assumed office on Jan 20, 2009. Stocks, which had started crashing in 2007, bottomed on March 9, 2009. And the $1-trillion deficits started under Bush as well. Like you said, he was handed a gigantic mess.
He did inherit a problem basket. However he really didnt and hasn’t, done anything truly constructive to rectify it.
People have been talking Infrastructure sine before QE II.
Six years later the CB’S and the IMF are talking the same .
O bummer did noting towards it, as it would interfere with his handout policy’s to his voters and his deliberate destruction of the white middle class.
Other leaders in other country’s got handed similar basket cases in the same period, most did much better than O bummer, at resolving them.
To say the least his, I won, I have the mandate, congress must do as I say position, was extremely unhelpful. for teh American in the street who was not a beneficiary of O bummers handout policy’s.
Timing of the unfortunate economic/government events of the past 20 years.
The mess ripened between 1996-2000. Bush was handed a the rotted mess (few remember that the economy was in recession left by Clinton- main stream media makes sure of that). In the short run, Bush improved things- or I should say the economy healed, as it basically always does.
9/11/2001 happened and the response by Bush/USA was not productive.
The central banks, the usual stupidity, speculation, fraud and military spending combined to cause the 2007-2009 recession. Which was a doozy for sure. The rot worsens…
In the short run, Obama improved things- or I should say the economy healed, as it basically always does…
The game is for the president to try to get out before the economy tanks.
Coal and gas will power the future. How that future will look like is beyond me, but it wont be powered by crude.
Here is a thermodynamic projection of the end of crude as net provider of energy.
The Total Production Energy cost to produce 100.000 BTU’s available for our use in a gallon of crude will cost 80.000 BTU’s next year… and the cost is rising exponentially.
Yoshua: Coal and gas will power the future.
Denmark and Germany get most of their energy from renewables, and sometimes pay their citizens and industries rather than charge them for it. Energy markets are widely expected to eventually make coal and gas obsolete, except in countries where the fossil fuel industry has established political domination.
Wrong. Even Denmark with it’s leading wind power generation company, and extensive coastline only hopes to generate about 20% of electricity by wind.
And ah, Germany, taxes it’s citizens to subsidize power to the industry lest it loose competitiveness.
Renewables are the topping on a cake, not a staple.
FYI: I’m typing this in Fl where a kWh of electricity is less than $0.11. For me it’s a lot less because I got $30,000 in rebates and tax credits to install solar PV.
But I digress:
In Germany it’s $0.34, and Denmark is $0.41 per kWh.
The utility may rebate on a highly limited basis, but high energy prices (subsidies to renewable production) are damaging their economies.
There was a post on Zero Hedge a while back that had a plot of electricity cost Vs % renewable capacity installed. Denmark had the highest renewable capacity, at about 40%, and the highest electricity cost at just over $0.40 as you say. It is probably not possible to go much above 40% capacity without storage, which would add significantly to the cost, so extrapolating out to 100% renewable would probably cost well over $1.00, maybe $2.00 or more.
In Germany renewables were responsible for 30% of power production in 2015. Germany does NOT pay citizens and industries. It does pay for generation out of wind mills, pv etc. And gas won’t be obsolete for a long time since you need gas-fired generators for controlling grid frequency. There is no real alternative yet.
Thanks for the link. I became familiar with this analysis back when it was called Net Available Energy. There are studies that show a similar scenario for Uranium.
How low can Russia price gas from Arctic and Siberian gas fields that are 3000 or more miles from European markets? In fact Russia has to ship some gas as LNG and can do so only during summer months!
While France is trying to ban cracked gas imports the reality is Russia will use cracking too for its new gas fields but the Marcellus shale fields are huge and exports from Cove Point, Md are closer and available year roundabout.
Trust your energy security to Russia chian or Muslims at your own peril.
“I am forced to trade the security of welsh coal, for the insecurity of Mideastern Oil. I will regret it.” Winston Churchill.
As memento mori has stated, and I have many times, the US is the best of a bad bunch.
I will trade them for better, why trade them for worse devils, in, Iran, Moscow, Beijing.
I read recently that Germany had upped their imports of Russian natural gas. Something like in the low teens.
Cheniere Energy is clearly looking to export LNG to Europe, and they had quite a few advert signs at the Spanish Formula Grand Prix in Barcelona last week. Russia’s Gazprom also does quite a bit of advertising in European football (soccer).
I don’t see the cost/benefit though, as individual consumers in Europe don’t have the ability to choose the Nat Gas suppliers – do they?
Memento Mori employs an obvious logical fallacy. A check upon US hegemony does not necessarily, immediately, or irrevocably result in an RF or PRC hegemony.
There is such a thing as a balance among several great powers, in which none of them possess hegemony or enjoy freedom of action.
Modern Europe was able to develop a dynamic civilization only because every effort to establish an hegemony was foiled by a series of alliances among the weaker powers. The weaker powers ganged up on whoever was strongest and eventually dragged them down.
If Spain or France or Germany had ever succeeded in dominating Europe, political freedom and cultural variety would have faded out. This has little to do with the particular characteristics of the would-be hegemon. The hegemonic power could be relatively progressive, like Napoleonic France. In the long run, it makes no difference.
In our own time we have seen how quickly the USA went from yesterday’s aw-shucks liberator, to today’s lying sinister black op dronemeister. Simply put: power corrupts.
Empire eventually kills the vitality and liberty of culture, no matter who does it, when or where or why, so Empire must always be stopped from happening in the first place. Strange bedfellows are worth it, to stop an empire. Britain allied with the reactionary Russians and obscurantist Spaniards in order to stop Bonaparte from dominating Europe. Russia and Britain were enemies of France when France threatened to dominate Europe, and then they both allied with France, when Germany threatened to dominate Europe.
Bottom line: Circumstances change, and the alliances must change with them.
Of course, modern technology could make traditional balance-of-power politics obsolete. The key technology would be the worldwide proliferation of thermonuclear weapons. Then we wouldn’t really need balance of power, since even small or weak countries would be able to deter the mightiest.
For example, Taiwan should have its own nuclear striking forces. Then the Taiwanese could be sure that there would never be reunification with PRC, except under terms agreeable to Taiwan. The Taiwanese could also dismiss the US fleet in the vicinity. “Thanks for the help, guys, ttfn!”
Poland should have its own nuclear forces. Today it’s a vulnerable country dependent on others for protection. But the Atomic Poland would stand as the Bulwark of Europe. The Poles could then say to the NATO dudes, “Y’all go home now, we got this Russia thing under control.”
Iran should have gone nuclear and then they could tell the Americans, the Russians, or who-the-hell-ever to drop dead. The solution to the problem of Iranian nuclear weapons would be Saudi nuclear weapons.
If anyone is sceptical about this, just think about the people 15-20 years ago who were all sky-is-falling because Pakistan was doing a nuke test. Today, India and Pakistan get along better than they did before, and there is less risk of war on the subcontinent.
One of the expectations from the availability of American LNG was that it would lower the prices paid by European users. And guess what? That’s exactly what happening here!
I don’t think America was ever destined to be the largest supplier of LNG to Europe, but that it was going to be a different option. And the availability of that option is causing the lower worldwide price for the product.