Can the EU depend on the United States to replace all its Russian gas imports with LNG soon?
That is a great question as the natural gas imported from Russia cannot be transitioned to LNG anytime soon, in fact, it will take years. There are some steps that can be made to minimize the length of time from the exporting countries and required import terminals. Currently, there are regasification terminals in Belgium, Croatia, Finland, France, Greece, Italy, Lithuania, Netherlands, Poland, Portugal, Turkey, and Spain. These countries have current floating storage regasification units (FSRUs) and can ramp imports with existing infrastructure.
This week there was a panic in the natural gas market due to Putin’s announcement of cutting Poland and Bulgaria off from their natural gas imports from Russia unless they pay in Rubles. Market Insider Published yesterday that four countries have already paid for their gas in Rubles, and additional countries have registered with the Russian Gazprombank to also pay in Rubles.
When looking at the map, you do not see a clear path for Germany, the Czech Republic, Hungary, Romania, or Bulgaria to balance LNG for a minimum of 3 to 5 years even if we start tomorrow. The fastest way to ramp countries’ importing capacity is with the use of 43 floating storage regasification units. But matching infrastructure needs to be put in place.
While Bulgaria is on the Black Sea, Russia controls the Black Sea, and it would be extremely difficult to find investors to put billions into a project that could be impacted negatively by the Russian military.
The further you get away from the Russian gas supply you find that there are more LNG ports already in place. Spain has the most import capabilities and will be the least impacted by the Russian gas mafia.
On the export side of increasing production, the middle east will ramp faster than the United States due to the lack of commitment and increased regulations from the current administration. Currently, there are billions of dollars being invested in infrastructure to support exporting facilities.
As for putting in new LNG import terminals you can see that they are not easy to get started. There are several LNG import terminals that our King Operating research team reviewed and there are several key points. Let’s look at the Cyprus LNG terminal. It was valued at $6 billion in U.S. dollars. Here are some key points. It was started in 2009 and is a mix between a FSRU and a land-based unit. Part of the funding is being provided by the European Union’s programs. It is being built by Chinese ship and pipeline companies. When you have a mix of offshore and onshore it makes sense to have the shipbuilding and pipeline companies working in tandem.
So, if projects are started in 2009 and they are now targeting 2023 to complete the project, you must wonder how fast the LNG import locations can be brought online. While this is way outside the norm, it does give us some ideas for timelines. There is a desire to move away from Russian gas and that is the first step. The second step is to acquire the funding and locations. The political mood is right, but the world monetary and countries will need to pool resources to ramp the facilities as fast as humanly possible. Conservatively you are 5 years to build an LNG import terminal, if you have the funding, regulatory permitting done, and the materials. Do you see all of these factors aligning to come together any time sooner than the 5-year estimate? So, if you think the answer is yes, then look at the steel, and other items required, and you will still be limited to building only a handful of these import terminals every year.
Europe as a continent will not be able to wean themselves off Russian natural gas for any time in the next decade. Some countries can and will be successful as we pointed out earlier, and the countries like Norway that have natural gas resources that have been shut down will need to start them back up to take some of the slack off as well. Nuclear energy, renewables, coal, and oil to generate electricity will be the only path available for 100% Russian gas embargos.
The Bottom Line
The Biden Administration has committed several times that the United States will come to the aid of Europe and provide all the LNG they need. As I mentioned in an earlier article, it is hypocritical and cannot happen. First, the rules and regulations are getting tougher on federal lands, and LNG export terminals are running at maximum capacity. So, it will take years to bring on enough liquification resources to provide the quantities required.
The Biden energy and EPA have already committed to slow-walk any approvals on new energy and LNG facilities projects. Even if we get a new Republican house and senate, legislation through regulations will be present until the next Presidential election.
The good news for United States E&P companies is that a slower increase in drilling programs is forming. Supply chain issues for steel, limited oilfield service equipment, and labor will keep the oil and gas prices inflated. But U.S. shale increased drilling will occur, and the markets will take advantage of the increased profits. These ESG funds will help with capital, but not enough to push oilfield service companies to increase their rig and frac fleets dramatically.
So, we are going to see increased funds, drilling, and profits for investors. The consumers and countries with bad energy policies will be hit the hardest.
As always check with your CPA if alternative investments are good for your portfolio
Please reach out to our team at any time for answers to your questions.
Jay R. Young, CEO, King Operating
ForbesBooks Author of “The Upside of Investing in Oil and Gas"