Europe looks like the best market for US natural gas sales

Bloomberg/Fuel Fix:

For years, U.S. gas companies looking to export liquefied natural gas dreamed of a booming Asia. Now, with demand there falling and the first shipment weeks away, Europe has emerged as the unlikely savior of American LNG.

European gas production is down and countries there want to get more of the heating and power plant fuel from places other than Russia – a major supplier, but one that’s brought plenty of headaches.

“It’s going to make a lot more sense for the U.S. gas to flow into the European market,” said Jason Bordoff, director of Columbia University’s center on global energy policy. “European energy security” comes from having “a diversity of supply,” he said.

It’s the latest twist in the U.S. gas boom. A decade ago, Cheniere Energy Inc. was building LNG import terminals on the Gulf Coast because people thought the U.S. didn’t have enough of the fuel. Then came the shale revolution, prompting Cheniere to convert its Sabine Pass facility to export LNG. The first tanker is set to dock there as soon as next month.

Five U.S. liquefaction projects are now being built and they could have a combined capacity to ship 7.76 billion cubic feet of LNG a day by 2019, according to an analysis by Bloomberg New Energy Finance. That’s enough to put the U.S. in the company of Russia and Qatar, the world’s largest gas exporters.

Companies like Annova LNG LLC are adapting to the shifting market. A couple of years ago, Annova President David Chung was brushing up on his Korean, thinking that’s the language buyers would speak. Increasingly, the Houston-based company is finding English will do.

“We have definitely been surprised by the level of interest in Europe,” said Mitchell Walk, director of LNG for the company, which is backed by Chicago-based electricity producer Exelon Corp.

Slowing Asian demand for gas is one factor behind the shift. China will only accept 77 percent of contracted cargoes in 2015 amid the country’s slowest economic growth since 1990, according to industry consultant IHS Inc.

Then there’s the fact that Asian gas prices are more heavily linked to crude oil than in Europe. In February 2014, spot LNG to northeast Asia fetched a record $19.70 per million British thermal units, according to the World Gas Intelligence publication in New York. Now, after the worst oil rout in a generation, it’s closer to $7 — not much higher than European prices — reducing the incentive to ship U.S. product halfway around the world.
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From a strategic standpoint Europe makes more sense as a target market.  It lessons their dependency on Russian gas at a time of increased tensions with that country.  The Eastern Europeans are especially interested in alternatives to Russia having lived under the yoke of the former Soviet Union.
The situation in Ukraine has also made the Russians less than a reliable supplier, and alternative sources of fuel make it esier to impose sanctions on Russia.