EU leaders accuse US natural gas producers of profiteering – Oil & Gas 360
Last month, French President Emmanuel Macron accused the United States of a “double standard” over the difference between the price at which LNG produced in the United States is sold in Europe and the price at which natural gas is sold within the United States.
“The North American economy makes choices for the sake of attractiveness, which I respect, but they create double standards,” Macron said, also adding that “they allow state aid of up to 80% in some sectors while it is blocked here – you get a double standard.”
He was not alone among European national leaders in his unhappiness with gas prices. In fact, as many as 15 leaders were unhappy, insisting that the EU impose a maximum price on all natural gas imports, regardless of origin. The idea came after careful attempts to persuade Norway to sell its gas at a discount and equally delicate attempts to persuade American producers to reciprocate. Now, the United States is responding to the accusations.
Brian Crabtree, assistant secretary of energy at the Department of Energy, told the Financial Times. “It’s not the American LNG company, it’s the international oil companies and traders that are based in Europe.”
In fact, LNG producers do not sell their products directly to the consumer, in contrast to a country in Europe, for example, they work with commodity companies such as Vitol and Trafigura, or Supermajors, including BP and Shell.
Take Cheniere Energy, the largest producer of liquefied natural gas in the United States. Earlier this year, Cheniere signed a long-term sale and purchase of its LNG with Chevron. Under the deal, Chevron will buy two million LNG from Chevron annually, then sell it at whatever price it deems fair.
Also this year, Cheniere completed another buy and sell deal as well with Norway’s Equinor, this time with an annual volume of 1.75 million tons of LNG. 1.75 million tons will also be sold at a price set by Equinor, not Cheniere.
This does not mean that LNG producers are not benefiting from strong demand for LNG from Europe. And that’s exactly why they benefit, in the form of higher profits: demand has gone up, and when demand goes up, prices follow, especially if supply isn’t growing as fast as demand.
Earlier this month, Cheniere Energy reported double-digit revenue and profit growth for the third quarter, thanks to such strong demand for its product. Separately, the company said it is ready to sign more long-term supply contracts, with both companies and governments in Europe, which will spur its planned capacity expansion.
At the same time, BP reported exceptionally strong performance in its gas trading unit. That wasn’t the case for Shell, however, as its gas trading division posted a $1 billion loss for the third quarter due to a sharp rise in European gas prices after exports via Nord Stream 1 were suspended.
So the accusations of Macron and others are not based entirely on facts, as producers are the first stop in a supply chain that includes intermediaries who are among the world’s largest commodity trading companies. Besides, even in the best of times, American LNG was more expensive than pipeline gas from Russia in real terms.
The reason for this is purely physical. Producing LNG is a much more complex process than purifying natural gas and sending it through a pipeline. Since LNG is more complex to produce, this automatically means that it is more expensive because it requires a lot of energy.
Once that gas is produced, it must be moved on deficient tankers as well this year, driving freight rates through the roof, increasing merchants’ expenses in shipping the product to customers.
In other words, Europe seems to want companies not to act as corporations and to seize every opportunity to make a profit, which is what companies are all about. But instead of dealing with these companies, many of which are located in Europe, the Department of Energy’s Crabtree told the Financial Times, it’s addressing the US federal government, which has little control over the private sector.
Whatever the case, Crabtree told the Financial Times that the US is committed to helping Europe get enough gas “at a price affordable for the continent.” It’s no surprise that he didn’t go into detail about how to achieve such a reasonable price. Nor is it surprising that his comments to the Financial Times contain a warning.
“So it’s particularly concerning for us that the discussion is being presented in Europe as if we have some control over the margins that are being sourced from our LNG, because we don’t,” the official said.
By Irina Slough for Oilprice.com
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