Energy companies from the European Union (EU) and China are scrambling to secure shipments of liquified natural gas (LNG) from the United States due to a potential supply shortage, according to the Financial Times. US LNG exporters have recently entered into long-term contracts with several European firms and Chinese private energy company ENN. The high demand for LNG is driving investment in America’s LNG infrastructure, but it could take up to three years to bring additional supplies fully online.
Back in March, the International Energy Agency (IEA) cautioned that the amount of new LNG capacity becoming available globally this year would be “very low.” Energy consultancy S&P Global even suggested that it would be even less than what the IEA estimated.
The EU experienced a surge in demand for LNG in the past year after the conflict in Ukraine erupted and led to sanctions against Russia, which was previously the bloc’s primary energy supplier. As a result, the EU shifted from relying on Russian pipeline gas to LNG shipments, primarily from the US and Qatar. However, the EU’s increased appetite for gas has been criticized for diverting supplies away from Asia.
According to data from S&P Global, Europe and China accounted for nearly 40% of the US LNG supply contracts signed between 2021 and late June 2023. While China purchased substantial volumes of American LNG in 2021 and 2022, its demand has dropped this year. On the other hand, European countries like France, Spain, and the UK have procured more gas from the US than China in 2023.
In response to Western sanctions, Russia redirected its energy flows towards Asia, leading Beijing to increase its gas imports from Russia. Official figures show that pipeline gas deliveries to China via the Power of Siberia pipeline surged by 49% in 2022 compared to the previous year, while LNG deliveries rose by 35%. Adding to this shift, China and Russia have actively reduced their reliance on the US dollar and euro in bilateral settlements, opting instead to use their national currencies. This movement aligns with a broader trend among developing nations to move away from the dominance of the US currency and the euro in international trade.
Moreover, other LNG suppliers have also started accepting the Chinese yuan for gas shipments. In May, China received a cargo of LNG from the United Arab Emirates, with the trade deal settled in yuan.
As the supply shortages persist and the demand for LNG remains high, energy companies in the EU and China are racing to secure their future gas supplies from the United States. Although it will take a couple of years for additional American export capacity to come online, these agreements will ensure a steady flow of LNG to meet the energy needs of these countries.
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