Biden’s gas for the EU

The US war against Putin for selling LNG to Europe makes no sense

Cui prodest? This is a question from which we often begin to get the wrong answer, usually with a conspiratorial taste. An example of this argument is that Joe Biden will fan the flames of the Ukraine war to prolong the conflict, to sell its natural gas to European Union countries instead of liquefied natural gas (LNG) instead of LNG to push Europe away from Russia. As evidenced by the March 25 agreement between the United States and the European Union, where Washington has promised to supply an additional 15 billion cubic meters of gas to Europe in 2022, there is potential for further growth in the future. This seems to be a line of reasoning, but it is completely wrong because it contradicts the truth and because it confuses the reasons with the result. If Biden’s real goal was to sell gas, he could have achieved much easier and cheaper results than resisting Europe against Putin.

To understand how things stand, we need to look at numbers. In the beginning, is it true that American LNG comes to the EU at more than double the price of Russian gas? In general, this is not the case. European importers purchase from Gazprom on a long-term basis, usually indicated in the TTF. They consider the price trend on the Dutch stock exchange in previous months and sometimes the trend of other products. In a phase of continuous and rapid growth, long-term prices are likely to be below the TTF, but not too high. Moreover, in the long run they will converge towards the current values: so, since they are too late to adjust to the reverse, they will be on the downside.

U.S. gas can come on the basis of either spot purchases or long-term commitments. In the first case, the Europeans pay a surprising price, just as they give their recognition to another producer on the same terms (Norway, Qatar, Australia or even the inter-EU countries).

On the other hand, contracts have different index formulas and are not generally known because they contain the most sensitivity to the information. However, there is a huge difference between the price of gas in the North American market (about 21 euros / mwh yesterday) and the TTF (about 110 euros yesterday). Between these two extremes there is a huge discussion space, which will depend on the terms of the agreement, the duration of which is very relevant. It is possible that, given the strong political value of the negotiations, the equilibrium point is far from the summit of Ttf and, consequently, it is indicated in a basket of products that will be considered, for example, American (Henry Hubb), European (TTF) and possibly Asian ( JKM, attached to the EU for several months) price. According to the Energy Information Administration, on the other hand, the average cost of European importers to acquire Star and Stripe gas in 2021 is about 25-30 euros / mwh.

If prices don’t seem to confirm the American conspiracy theory, what about volume? There are also little trips here. At present, the American liquefaction capacity – which is the real infrastructural barrier to limiting exports – is 124 billion cubic meters per year, which will increase to 144 in the next three years. Although Europe still has a lot of regasification capacity (as of January 2022, the use rate of regasifiers was 74 percent), the United States could not sell more because it is liquefying and exporting every single gas molecule. Indeed, American LNG is not only used to supply Europe: in 2021 the main recipient countries were South Korea, China, Japan and Brazil. Spain, the largest European importer, ranks only fifth; Italy twenty-two. There is a growing trend of imports into the European Union (16 percent in 2019 to 28 percent in 2021), precisely because US LNG is a fundamental component of European energy security and diversification strategies, but at least in the short term in Europe, they will not be an additional business for the United States. , But an alternative: that is, they will be subtracted from the rest of the world. This is exactly what has happened in the last three months, when Europe suddenly became the main destination for LNG carriers. It is so true that the US is unable to meet European demand that in January, before the invasion of Ukraine, when Russia was cutting off supplies, Biden met with Sheikh Al-Thani of Qatar to persuade him to increase LNG supplies to Europe. Qatar is the world’s largest LNG exporter, along with the United States and Australia, so if Biden’s goal was to increase sales in the EU, he would not ask any competitor to do it for him.

Accounts are not added from an economic point of view, but not from a political point of view. Biden has a very bad relationship with the American oil industry. During the election campaign and in the first months of the mandate, the White House has always insisted on distance from the oil companies, and even today there has been no formal meeting with the trade associations. Biden has even gone so far as to threaten companies with the removal and re-allocation of unused search permits if companies do not start digging now. And for all that, gasoline is now steadily above $ 4 per gallon, and with gas prices rising, Democrats fear losing the midterm elections next fall.

In short: American industry did not need Biden’s pressure to sell LNG in Europe, and Biden himself would be interested in, if anything, a protectionist pressure. Moreover, the weight of gas in the American economy is in no way comparable to that of Russia, and in any case, it is not that American will be able to determine foreign policy, nor is there a clear relationship between the president and it. Oil industry. If American LNG becomes necessary for a Europe that eventually seeks to disassociate itself from Moscow, it is up to Putin, who thought he could use his gas as a strategic blackmail weapon against the EU.

Like all conspiracy theories, even Biden’s long man and the oilmen behind the war in Ukraine whisper failure. Or, rather, the pin for the barrel.

From The paperApril 8, 2022

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