The western press noticed wrong in the American energy market. So, The Financial Times mourns that «the long era of cheap slate gas in the USA shows fading signs» and the oil and gas companies «do not hurry to increase production in response to a jump in prices».

The reason for melancholy is quite clear: average prices of Henry Hub grow monthly since the beginning of 2022. Prices of electricity not least depend on the prices of natural gas. Thus all gas export from the United States grows. And on the other side of the ocean, the beautiful Europe looks invitingly, to which the generous President Biden seems to have promised to bring some more blue fuel to save the unfortunate from the evil dragon, which has been providing the beauty with energy resources for more than half a century.

The dying-away era

In 2009 suddenly there was a new star in world power — slate gas. The excited part of expert community immediately started predicting improbable changes around the world: who was a consumer — will become the supplier, and traditional producers of hydrocarbons will fall and will disappear as superfluous. The improbable future was drawn for such countries of Europe as Great Britain, Poland, Ukraine, and many copies were broken in France and Germany round slate gas.
More careful, but nevertheless optimistic experts wrote the following in 2010: «Europe will begin the first production of slate gas somewhere in 2018, and it will get mass character by 2022″. But here it is, 2022, and there has been no mass production of shale gas in Europe.
However, in the United States «slate» really made revolution. It just didn’t look like that and had the wrong consequences that, let’s say, a mass audience expected from it. In the United States, gas generation took off like a rocket, and coal generation, on the contrary, began to lose ground. Most of all nuclear power plants, perhaps, suffered from development of slate production — new projects interested nobody or a long time. And really, why do we need nuclear power plants if there is blue fuel, which is often traded cheaper than $ 100 per 1 thousand cubic meters?
The multiple decline in quotations on Henry Hub compared to the levels of the 2000s is also one of the consequences of the «shale revolution». An average level of exchange quotations in a month reached peak values in June, 2008 — 450 dollars for 1 thousand CBM (12.69 dollars for MBTU). The last years ten average value fluctuated within 70-140 dollars for 1 thousand CBM.
Thanks to such low quotes for Western markets, a myth arose about the imminent arrival of «ultra-cheap» American liquefied natural gas (LNG) in Europe. The idea of export in itself of LNG from the United States arose as the solution of problems of regasification terminals which vast majority of the USA constructed during 2008-2011.
And on May 4, gas rose in price for Henry Hub approximately to 300 dollars for 1 thousand CBM (8.35 dollars for MBTU). And it was not any accident, a consequence of a special situation (as, for example, 850 dollars on February 17, 2021 against the freezing Texas and sharp reduction of production). An average value grew every month since January, 2022. If in January it made about 155 dollars for 1 thousand CBM (4.38 dollars for MBTU), in April reached 235 dollars for 1 thousand CBM (6.6 dollars for MBTU).
The Energy Information Administration (EIA) noted in its short-term forecast that the high average price in March was higher than the average price in February, «as the extraction of reserves from underground storage slightly outpaced the average for the period 2017-2021.» Proceeding from this assumption, EIA considered that the average price in April will make 210 dollars for 1 thousand CBM (5.59 dollars for MBTU). But, we believe, the attentive reader already guessed that the evil reality was worse than the forecast. We believe that this was due to the growing exports.
Back in 2016, when supplies of liquefied natural gas from the United States started, it was obvious that the more exports there would be, the more the export alternative would put pressure on domestic American prices. Surplus of the offer could win against this factor, but since 2021 any surplus is not observed. On the contrary, gas rose in price in many large markets because demand stayed ahead the offer.
Actually now we observe how the world energy crisis presses on the American economy. It would be a mistake assuming that problems in the USA arose only now. Actually, as well as in the European Union, they arose in the second half of 2021.

To stop export

In the fall of 2021 the Association of industrial consumers of energy of America appealed to limit LNG export twice. In November it even wrote to the Minister of Energy of the United States Jennifer Grenkholm a letter. In it arguments in favor of restriction of export of the liquefied natural gas were given to the countries which did not conclude an agreement on free trade with the USA. It was necessary to make it until safety of deliveries to the American consumers is ensured.
The first five months of 2021 gas price only came back to the USA to pre-covid indicators. But everything changed in June when an average monthly indicator reached the greatest value since 2014. And since August it began to update records over the last ten years.
On this restless background, as well as in many other countries, demand for coal started being restored. Average Americans, judging by public statements, questions started tormenting, whether energy resources will be enough for them in the future winter and whether they will be able to pay bills.
The administration of U.S. President Joseph Biden even had to act in October of 2021 with appeals to continue use of natural gas. That just closely came nearer to a mark of 200 dollars for 1 thousand CBM. And all this is under attempts to decide on financing of «A green course».
It is remarkable that not clear position of team of Joseph Biden on carbon-free power transition very much upset ecological activists who began to protest at gate of the White house. They urged the U.S. President to forbid hydraulic fracturing of layer and to stop export of fossil fuel from the USA.
Then in the short-term forecast the Management of power information assumed that the spot prices of natural gas in the United States during the period since October the 2021st till March of the 2022nd will average 200 dollars for 1 thousand CBM (5.67 dollars for MBTU). It would be the highest rate since 2007-2008.
But in reality the average value was lower. In many respects due to reduction of quotations in December, 2021 to 135 dollars for 1 thousand CBM (3.76 dollars for MBTU). Having estimated so strong decrease, EIA nevertheless could not but note that the electricity generation share at the expense of natural gas in the United States in 2021 averaged 37% in comparison with 39% in 2020. Thus analysts assumed that in 2022 this indicator will decrease to 35% because of higher prices of the energy carrier.
According to the last forecasts of Management of power information published in April of this year, average gas prices in 2022 have to make 185 dollars for 1 thousand CBM (5.23 dollars for MBTU). But, considering actual statistics on quotations on Henry Hub, in the world in general and the USA in particular in the second half of the year in the energy markets there has to be something improbable that so modest forecast was true.
So far in the world the energy crisis proceeds. Signs of fast return to the prices at least at the moment are not present the level of 2014. Demand for gas still grows, and production behind it is not in time. The United States thus by the present moment became not only one of the main producers of LNG, but also one of main suppliers of gas on the short-term market (contracts till four years inclusive).

40% of world trade

LNG import, according to GIIGNL, in 2021 grew by 4,5% concerning indicators of the 2020s — to 514 billion cubic meters. It, of course, is significantly better, than in 2020, when growth made only 0.4%. But nevertheless it is impossible to call this result a little outstanding as, for example, in 2019 the gain made 13%. But that year was characterized by sharp take-off of outputs, and also low prices. For the obvious reasons the year 2021 could not brag of neither sharp increase in production, nor low prices.
LNG trade at the moment makes about 40% of all world cross-border trade by natural gas.
The third years in row positions of Asia as largest buyer continue to be restored: in 2019 its share made 69%, in 2020 — 71% and in 2021 — 73%. The largest buyer of LNG was China which overtook Japan, having bought 109.5 billion cubic meters (is 15% more than in 2020).
Europe at the same time, on the contrary, reduced gas consumption including LNG: according to GIIGNL, pure import to Europe (taking into account Turkey) was reduced by 8% — to 104.2 billion cubic meters (according to EIA, this indicator made 104.4 billion cubic meters). Thus, the Old World provided only 20% of world demand. If not to consider Turkey, the European countries last year bought a little more than 88 billion cubic meters of LNG — 17% of world demand.
Europe (without Turkey) is more modest buyer of the liquefied natural gas than China and Japan separately, though purely theoretically it could be more significant player.
Total power of the European terminals for reception of the liquefied natural gas, according to GIIGNL, makes 253.6 billion cubic meters a year. If not to consider Turkey (34.6 billion cubic meters), the cumulative power of the European LNG terminals will make 219 billion cubic meters.
Europe loses to Asia for several reasons. It usually offers lower prices than Asia-Pacific countries, it rejects long-term contracts in principle and plans to refuse hydrocarbons.
In 2022 some splashes in supply of LNG to Europe were observed. Practically all of them were connected with a sharp increase in prices. So, significant increase in import of the liquefied natural gas was observed after jump of quotations at the end of 2021, as well as after phenomenal (and from this not less hysterical) a price hike in February-March 2022, etc. up to the beginning of May when the European Union suffered from quotations at the level of 1300 dollars for 1 thousand CBM while in Asia they were at the level of 850 dollars.
That is sometimes the EU offers suppliers more favorable price conditions, but long is not capable to support an award to the Asian European Union exchanges — the European economy was already included into deep crisis.
It does not prevent the management of the Old World to sound plans for replacement of the Russian pipeline deliveries with the liquefied natural gas, first of all — from the USA.

Replacement of Russia, with reservations

Regasification terminals in the European Union were under construction the last fifteen years with a view to replacement of deliveries of Russia. But even in record years they did not manage to be filled more than half. At the end of February, 2022 heads of the EU blew off dust from old strategy and since then try to give them as absolutely new means of achievement of «power independence of the Russian Federation».

Considering the capacities which were standing idle in 2021, it is possible to tell that LNG will allow Europe to replace about two thirds of the Russian import. But the largest capacities for reception of the liquefied natural gas in the European Union (and in the region in general) Spain (68 billion cubic meters) possesses. On the second place with a big separation is France (36 billion cubic meters), and on the third is Italy (15 billion cubic meters). Also it is worth noticing that except Turkey outside the EU large capacities for import of LNG Britain (48.7 billion cubic meters) possesses.
Spain does not receive direct pipeline supply of natural gas from our country. If to add to its powers 7.7 billion cubic meters of the Portuguese terminals, it will appear that only about 143 billion cubic meters belong to those countries which receive the Russian gas on gas pipelines (taking into account swap operations). From this volume no more than 70 billion cubic meters are conditionally idle.
But also in former times it was not observed surplus of persons interested to sell gas to Europe to the detriment of Asia. And in the conditions of a world energy crisis quite problem and, frankly speaking, the EU scandalous market could involve additional deliveries with only record-breaking high prices. But in general this method does not solve a problem of shortage of the offer (which, for example, directly declared Qatar), and only aggravates it.
And suddenly in March the U.S. President Joseph Biden signed with the head of European Commission Ursula von der Leien the agreement on additional deliveries in 2022 LNG in the EU in volume not less than 15 billion cubic meters. And till 2030 EC undertook to work on increasing deliveries from the United States approximately by 50 billion cubic meters. It would seem, here — Chip and Dale came to the rescue, the Captain America took Europe under protection, the Superman with Batman proved to all discordant that America does not throw the allies and helps with their fight for non-volatility!
But, it is known that everything that is told before «but», does not matter. That is why the main thing. Actually in the text of the signed agreement the following was told: «The United States will cooperate with the international partners and to seek to provide additional volumes of LNG for the EU market of not less than 15 billion cubic meters in 2022 with the expected increase in the future». No guarantees. And where can they come from if the US leadership does not manage gas flows, and the main market for LNG produced in the States is Asia.

American gas delivery

In 2021 the United States, according to EIA, exported 188.4 billion cubic meters of gas. It is approximately equal to the volume of export of pipeline gas from Russia to foreign countries in 2021. It would seem — wow! But, it is «but» again.
About 87.6 billion cubic meters from this volume are a share of pipeline deliveries to Canada and Mexico. Canada in this case delivers 2.5 times more gas to the States than imports. And here Mexico is a growing export direction. In 2020 the USA delivered to this country 54.3 billion cubic meters, and in 2021 — 61 billion cubic meters.
Export of LNG last year made 100.8 billion cubic meters. From this volume, according to EIA and GIIGNL, 49% were a share of Asia. In leaders among importers of the LNG made in the States is South Korea (12.8 billion cubic meters). Deliveries to China made 12.7 billion cubic meters. It is remarkable that following the results of the first 11 months the People’s Republic of China was the leader among importers of the American gas. But judging by modest statistics of December, and also more than to modest deliveries at the beginning of 2022 (in January — 0 CBM), price jump in Europe led to redistribution of streams.
It is worth making a reservation that the USA together with Australia are the main suppliers of LNG for the short-term market. Most of players sought to go to sector of long-term contracts. They have as much no opportunities to throw volumes from one direction on another.
Japan (10.05 billion cubic meters) became the third largest buyer of the liquefied natural gas from the United States following the results of last year. And the fourth is Brazil (8.7 billion cubic meters). Only on the fifth there is the European country — Spain (6.09 billion cubic meters). The gap between the sixth and seventh places is minimal: to India 5,556 billion cubic meters, and were delivered to Great Britain — 5,523 billion cubic meters.
In general, according to EIA, 23.6 billion cubic meters came to Europe in 2021 (without the Turkish 5.3 billion cubic meters).
In 2022 the potential of the American LNG production will increase still approximately by 16 billion cubic meters. From here, by the way, Joseph Biden’s promise to try to put in the EU «in addition not less than 15 billion cubic meters» also undertook.

In the middle of a price storm

And now we will separately talk about redistribution of streams. And now we will talk separately about the redistribution of flows. Companies that signed contracts with American liquefaction plants actively used freedom of maneuver at the beginning of the year. In January after the long period of zero deliveries from the States import to Belgium jumped up at once on 0.39 billion cubic meters, and in February, according to EIA, this indicator made 0.22 billion cubic meters and after the similar period of «zero American import» in January-February Italy received 0.59 million cubic meters. Deliveries to the Netherlands for the same period increased to 1.36 billion cubic meters from 0.9 billion cubic meters in November-December. A similar situation in France: growth from 1.25 billion cubic meters to 2.54 billion cubic meters.
But for the sake of these indicators it was necessary to reduce deliveries to South Korea and Japan and considerably to roll export to China. That is before us result of redistribution of streams during small price war. Europe is incapable on big price war.
Growth of deliveries happened before the conflict in Ukraine. That once again emphasizes the simple fact: the increase in supply of the American gas to Europe to the detriment of Asia is the small episode entered in a context of a world energy crisis. It depends a little on desires and political will of heads as European Union as well as the USA.
According to EIA, in March export of LNG made about 10.45 billion cubic meters of the States. It is about 0.6 billion cubic meters more than in February. The result for the American LNG plants is certainly outstanding. But it cannot render significant influence in the markets of Europe and Asia. Especially if we consider the proceeding increase in demand from China which was only a little slowed down against quarantine measures in certain regions of the country.
EIA assumes that the gain of deliveries in the current year can even make in the USA not 16% but 25%. And own consumption, according to the same forecast, will increase slightly — by 1% only.
It turns out that with more moderate exports in 2021, the question of banning or at least suspending supplies to foreign markets has matured in society and political circles. Essentially since 2021 changed nothing: the prices of natural gas are still high. At increase in export of LNG pressure upon the domestic American market inevitable will grow.
The American producers do not hurry to increase gas production. They are already satisfied with the available cash flow. Chesapeake Energy which went out of business in 2020 reported about a record free cash flow for the first three months 2022. The company considered negative experience of last years and deals with issues of payment discipline much more than building of capital expenditure.
According to the forecast of Rystad Energy, in 2022 the American producers of slate gas will increase a free cash flow for 70% (to record level over 830 billion dollars). But capital expenditure will increase only by 11% (to 286 billion dollars).
Nobody hurries to bring down the business, thoughtlessly as in former years, increasing production. The growing operational expenses already play against the American companies. And the most important, nobody cancelled the course of the political country leaders discouraging oil and gas branch of the United States on radical «gardening» of power.
LNG production grows. Mutual influence of the regional markets increases in process of its growth. The USA became one of the largest exporters. And the further it goes, the more the situation on foreign exchanges affects their energy. And there is a raging price storm that threatens to cover the United States itself.