US LNG deal 'could be significant for relationship with Europe'

Commenting on the trade agreement between the US and European Union, announced by President Donald Trump and European Commission president Jean-Claude Juncker in Washington DC on 25 July, Giles Farrer, research director, global LNG, at Wood Mackenzie, said: “Promoting LNG exports has been a feature of recent US trade announcements. Gas exports offer a means of reducing US trade imbalances.

“The impact of the agreement is likely to be small on the overall US trade deficit, but could be significant in terms of the relationship with Europe.

"Last year's US trade deficit with the EU was  around US$150 billion.

"We forecast that US LNG will account for half of Europe's LNG imports by the mid-2020s which would equate to an overall value of US$20 billion.”

Mr Farrer added: “Europe's need for LNG will grow. As domestic production in Europe continues to decline, we forecast gas import dependency will rise from 50% between 2010 and 2017 to almost 70% in 2025 and over 80% by 2035.

"As growth from traditional suppliers like Algeria is limited, Europe will need LNG if it does not want to become increasingly reliant on Russian gas to meet demand.

“Developers in the US have proposed over 100 million tonnes per annum (tpa) of new capacity and, given its relative proximity, Europe is a natural target market.

"However, for those proposed projects to go ahead, companies developing US LNG export projects need to reach multi-billion-dollar long-term commercial sales agreements with European companies. US developers can then use these sales agreements to raise financing.

“Despite the rhetoric, the question is ‘What can the politicians actually do to support US LNG to Europe?',” Mr Farrer said.

“The European Commission has limited influence in the commercial decisions of how European gas buyers source their supplies, but it does have a track record of supporting financing efforts for LNG import infrastructure – whether that be new terminals or expansions and could encourage their banks and export credit agencies to provide financing to US projects on favourable terms. 

“European companies supported the first wave of US export developments and we have recently seen European companies signing up to buy LNG on a long-term basis from new US projects. Edison (Italy), Galp (Portugal) and PGNIG (Poland) have all announced deals and we expect more to follow.”