Cheniere Energy Inc.
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US Shale Gas Bound for Europe

April 20, 2016
Europe will become the third continent for U.S. shale gas, which has already turned the country into the world’s biggest gas producer and will make it a net exporter this year.

Within a decade of revolutionizing domestic natural gas markets, U.S. shale will for the first time enter Europe, a region dominated by Russian and Norwegian supplies.

Portugal will receive the tanker Creole Spirit, the sixth cargo from Cheniere Energy Inc.’s Sabine Pass facility, according to two people with direct knowledge of the matter. The first left the plant in Louisiana for Brazil in February.

Europe will become the third continent for U.S. shale gas, which has already turned the country into the world’s biggest gas producer and will make it a net exporter this year, helping contribute to an 18% increase in global LNG capacity through 2017, according to Bank of America Merrill Lynch. The flexible U.S. volumes, coming after five years of stagnation in global LNG capacity, have already been shipped to Brazil, Argentina and India.

“LNG coming out of the U.S. is probably the single most important thing that will transform the future LNG market,” said Melissa Stark, energy managing director and global LNG lead at Accenture. “It heralds the arrival of a global market.”

The Creole Spirit, which left Sabine Pass on April 15, is now in the Atlantic Ocean headed toward Europe, according to ship-tracking data on Bloomberg. It’s expected to arrive at the port of Sines in Portugal in about a week, one of the people said, asking not to be identified because the information is private.

Galp Energia SGPS SA, Portugal’s biggest oil company, bought the cargo, the people said. Galp spokeswoman Rita Carvalho declined to comment by e-mail.

Europe’s biggest energy companies, including Centrica Plc and Gas Natural SDG SA, contracted U.S. LNG, meaning trading will expand once cargoes become regular and commercial. More LNG tankers are being diverted to Europe’s underused terminals and liquid hubs in the northwest after prices in key consuming nations in Asia fell. Net LNG imports to Europe rose 16% last year, according to the International Group of LNG Importers.

Portugal relied on LNG imports, mainly from Nigeria, for about a third of its natural gas last year, according to energy grid operator REN-Redes Energeticas Nacionais SA. The rest came by pipelines from Algeria through Spain. The southern European nation boosted LNG imports 13 percent to 1.1 million metric tons last year.

Cheniere estimates shipping costs to Europe at 50 cents a million British thermal units compared with $1.50 to transport fuel to Asia. Spot Asian LNG crashed 72% in the past two years amid rising production in Australia and weaker demand in Japan, South Korea and China, the world’s biggest consumers of LNG. That narrowed the price difference between Europe and Asia.

Geopolitical Symbolism

“U.S. LNG supply to Europe may have strong geopolitical symbolism, but its current volume impact will be negligible, until the big volumes come on stream in 2018-19, and cargoes will probably go to higher value markets in Latin America and elsewhere,” said Jonathan Stern, chairman and founder of the natural gas research program at the Oxford Institute for Energy Studies.

Russia’s Gazprom PJSC, which is seeking to boost exports to its biggest market by revenue to a record this year, has said U.S. LNG can’t compete on price in Europe and American supplies to the region will be limited. Russia meets a third of European gas supply, with Germany being the biggest market.

More than half of U.S. total LNG production may be destined for Europe by 2020, according to Wood Mackenzie Ltd. Cheniere said in January that it can profitably sell LNG despite lower prices, though margins may be as little as $1 per million Btu to Europe.

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