Europe’s Natural Gas Dilemma

As Europe is searching for natural gas alternative supply other than the Russians, the United States claimed through president Joseph Biden that it would deliver an average of 15 billion cubic meters of additional liquified natural gas to the EU this year. The long-time plan entitles the US to support the EU secure short-term liquefied natural gas supplies to begin displacing Russian gas, and Europe will work toward ensuring a larger market for US gas by 2030.


LNG is liquified natural gas at about -126.667° C with an average storage volume 600 times less than its gaseous state. The liquification process that was developed in the 19th century facilitates gas transportation to locations where natural gas pipelines are unreachable. At import terminals, LNG is offloaded from ships and is stored in cryogenic storage tanks before it is returned to its gaseous state. After regasification, the natural gas is transported by natural gas pipelines to natural gas-fired power plants, industrial facilities, and residential and commercial customers.


According to the IEA, world natural gas production reached an average of 4000 billion cubic meters in 2020.  OECD member countries’ total natural gas production in 2020 was 1,542 billion cubic meters while total demand in the same year was 1,822 billion cubic meters leading to a deficit of 280 billion cubic meters.


Natural gas production has been diminishing since 2010 recording approximately 20% of total EU supply with higher reliance at 80% on pipelines and liquified imports in 2020. Moreover, gas supply to Europe through pipelines is at 74% versus 26% LNG Imports. Pipeline imports of natural gas into the European region come from Russia, Norway, North Africa, given that Russia is the largest supplier in the region pumping 32% in 2021 versus 40% in 2019 of EU's natural gas totaling 155 billion cubic meters.

Source: US Energy Information and Administration (EIA)


Source: US Energy Information and Administration (EIA)


Source: US Energy Information and Administration (EIA)


In 2021, a large share of Europe’s supply of liquified natural gas came from the United States (26%), Qatar (24%), and Russia (20%). All of the three combined together contribute to 70% of the EU supply for LNG. The United States is highly contributing to the LNG supply to the EU due to the current political challenges addressing the EU gas supply through pipelines and the competitive price of the US LNG over its peer at European trading hubs.

Source: US Energy Information and Administration (EIA) 


The current geopolitical conflict between NATO and Russia would be translated to a 32% deficit of natural gas supply to the EU including 20% LNG from Russia, and accordingly, exiling 8% of the LNG Russian supply to the global market. Besides, the lower Norwegian flows amid unplanned outages at the Skarv field, noting that Norway is the second natural gas supplier in Europe. 


Source: Bloomberg


The above issues wouldn’t give any chance for the EU but skew towards increasing LNG importation from the United States, the largest global producer of natural gas. The US said it would provide Europe with 15bn cubic meters of liquefied natural gas to the EU this year. According to Refinitiv, the baseline for the pledged 15bn is not clear. But the US shipped about 22bn cubic meters of LNG gas to Europe in 2021 and has already sent 10bn in the first quarter of this year.


Source: Financial Times


As stated by the German prime minister, the country is negotiating to secure three floating storage regasification units that can turn imported LNG back to gas. The energy companies Uniper and RWE have the options to use the vessels on behalf of the German government. The minister said the vessels would provide 27 billion cubic meters of gas per year. 


In the long term, the US declared the intention to supply 50 billion cubic meters to Europe through the course of 2030; however, as stated by the journal of petroleum capacity, by the end of 2022 the US LNG nominal LNG production peak would be 13.9 billion cubic feet and 16 billion cubic feet by end of 2024. 


 Apparently, the long-term plan of the EU facilitation of natural gas supply through LNG importation would be challenging since LNG plants require years to build aside from developers and financial bakers’ need to secure contracts from purchasers lasting an average of 20 years. In fact, the only solution for energy security is through green energy and getting Europe off the gas.


After correcting downward from the February 2014 high price of $6.6, US natural gas corrected at 38% to its lowest at $3.5; however, following the news of the US additional exportation, the commodity resumed the uptrend recording $5.37 as of today. Weekly resistance would be $5.9 followed by $6.5 and Support levels are at $5.2, $4.6, and $4.2

Source: TradingView


RWE: is a globally active energy company. The Company generates and trades electricity. RWE has a capacity of about 10 gigawatts based on renewable sources, as well as a gas fleet and an internationally active energy trading business. RWE serves clients in Europe, Asia-Pacific, and the United States. .source:

In September 2015, the stock retraced 60% from the major downtrend that started in January 2008. Closing above €46 would support the stock's uptrend move. Support levels are € 38.7 at which the stock is currently trading followed by €32.85 and €28.60 which if broken downwards would signal trend weakness.

Source: TradingView


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