LNG in Europe
For the third consecutive year, the U.S. supplied more LNG to Europe than any other country. The U.S. share has steadily been increasing from 27%, or 2.4 billion cubic feet per day (Bcf/d), of total European LNG imports in 2021; 44% (6.5 Bcf/d) in 2022; and 48% (7.1 Bcf/d) in 2023. The U.S. has remained the largest exporter of liquefied natural gas (LNG) in 2024, but a steep drop in selling prices and a sharp swing in export volumes to key markets is likely testing exporter appetite to stay on top. The U.S. shipped a record 56.9 million metric tons of LNG during the first eight months of 2024.
That surpassed the 54.3 million tons from Australia and 53.7 million tons from Qatar during that period, and marks only the second straight year that U.S. exporters have topped global export rankings. However, a more than 25% drop in average LNG export prices during the first half of 2024 from the first half of 2023 dealt a heavy blow to export revenues, which dropped by $4 billion from the opening half of 2023 to $13.2 billion, data from the U.S. Energy Information Administration (EIA) shows.
That was the lowest half-year revenue total since the first half of 2021 and marks a more than $12 billion fall from the second half of 2022 when U.S. export earnings from LNG peaked. The challenge of sharply falling revenues was compounded by a sharp reconfiguration in export volumes to key markets, which saw shipments to relatively close markets in Europe drop by more than 20% while sales to more distant Asia rose by over 40%.
Continued muted LNG demand in Europe and further growth in Asia may test the resolve of U.S. exporters to remain the world’s largest LNG sellers, as several far-flung Asian markets can be more cheaply supplied by other sellers, including Russia. Europe’s sudden jump in demand for LNG since the conflict in Ukraine started in 2022 snarled natural gas pipeline flows to the region has been the main catalyst behind the ascendancy of the U.S. LNG export industry.
From 2018 through 2021, U.S. LNG exports to Europe averaged around 15 million tons a year but jumped to around 55 million tons annually in 2022 and 2023 as Europe’s power firms scrambled to replace lost Russian gas by whatever means necessary. U.S. exporters were happy to help fill the gas gap, lifting total export volumes by 95% from 2019’s total by the end of 2022.
Europe’s share of the total U.S. LNG traffic also roughly doubled, from around 37% from 2019 through 2021 to nearly 70% in 2022. A roughly 44% drop in shipments to Asia during 2022 from the year before also allowed U.S. LNG sellers to prioritize Europe over all other customers and capitalize on the unprecedented supply shock that roiled global gas markets during that period.
U.S. LNG shipments to Europe scaled even greater heights in 2023, but the tone has changed in 2024, with shipments from January through August dropping by 22% from the same months in 2023. A key driver behind that slowdown has been a sharp climb in European power generation from renewable energy sources, which remain a priority for Europe’s power firms. Solar and wind power’s share of electricity generation in Europe jumped from around 16.4% in 2022 to 20.5% in 2024.To make way for the higher renewables generation, fossil fuel generation’s share dropped from around 44.6% in 2022 to 36.6%. This trend will continue and will put additional pressure on U.S. export. Combined with price pressure, the U.S. might have a hard to achieve profitability.
Coal-fired power has been the main fossil fuel source that has been cut in Europe, but natural gas generation’s share has also declined, from around 26% in 2022 to 22% so far this year. To make up for lower sales into Europe, U.S. exporters may attempt to grow share in Asia, which is a clear bright spot for global gas sellers. However, other major exporters including Qatar and Australia boast far lower shipping distances to key Asian markets, on top of competitive gas liquefaction charges. Shipments to India, for example, can take five times longer from Cove Point in the U.S. than from Ras Laffan in Qatar. And Australia can ship LNG to southern China in under nine days, compared to 35 days from the U.S. East Coast. The U.S. LNG tanker fleet is able to handle such long distances, but the stretched-out turnaround times would eat into exporter earnings and may result in the LNG export sector dialing back shipments to only the largest buyers. At the same time, Russia grew LNG export by 3% in 2024, and is especially growing in Asia, with China as the biggest buyer. The Russian pivot to Asia is expected to continue in 2025.
For the U.S., it will be a challenge to remain profitable and it may lead to the U.S. losing the top LNG exporter spot to its main rivals that have expansion plans already in place to serve fast-growing local markets. The LNG market in Europe is undergoing a transformation as Russian gas has stopped flowing to EU states via Ukraine after a five-year deal expired, marking the end of a decades-long arrangement. Russia can still send gas to Hungary, Turkey and Serbia through the TurkStream pipeline across the Black Sea. The EU has significantly reduced imports of gas from Russia since the conflict in Ukraine started in 2022, but several eastern member states still depend largely on the supplies, making Russia about $5.2bn a year. The EU gas strategy is relatively straightforward aiming to increase energy security by diversifying energy imports and saving energy, accelerate the transition to clean energy, better use the EU’s collective purchasing power to negotiate better prices and support coordinated purchasing of natural gas. All if this will put additional pressure on the U.S. EU gas export. The U.S. will have to continue diversifying its export and at the same time try to reduce costs. The EU market will shrink over time based on the EU strategy, so the U.S. needs to find new export markets and grow exports outside Europe. The U.S. does not have the geographical advantage like Russia, so the profitability aspect will put additional pressure on U.S. LNG exports.