Uniper CEO says US LNG too expensive, Europe needs alternative gas sources

European natural gas suppliers will have to be more active in finding alternative supplies as the United States is actively pushing for its liquefied natural gas (LNG) shipments into Europe, according to Klaus Schäfer, Chief Executive of German utility Uniper.

Last week the United States enacted a law that gives its government the option of placing sanctions related to Russia’s activities in Crimea, which could disrupt Nord Stream 2, a Russian gas export pipeline to Europe backed by Uniper, Engie, OMV, Shell, and Wintershall.

“The law is perhaps only ostensibly a response to Russia’s intervention in the U.S. presidential election and to its occupation of the Crimean peninsula. It the law’s core, however, are U.S. strategic economic interests; namely, America’s ambition to dominate the global energy market,” Schäfer said in a speech prepared for a call with journalists on Uniper’s first-half earnings.

“I’d like to state very clearly that I’m firmly convinced that Nord Stream 2 will be built. European energy policy can’t be at the mercy of American economic and domestic policy,” he said.

“That’s why I’m very pleased that the German government and the European Commission have this firmly in view and have stated their position unequivocally. The United States is putting Europe’s supply security at risk for the sole purpose of pursuing its own economic interests and to protect domestic jobs,” Schäfer said.

He added that it was important that European and German policymakers “are standing shoulder to shoulder and have already made clear that they won’t allow this to happen.”

Talking about future gas supplies, he said that Europe will have to import more gas in the future. It already imports about 200 billion cubic meters (bcm) of gas a year.

However, domestic production sources are drying up in the European Union and in Norway, while the demand for gas will increase going forward.

That is why expanding Europe’s gas infrastructure “is simply a necessity in order to ensure its supply security,” Schäfer said.

“And, yes, I believe this infrastructure should include new gas transport capacity from Russia and other regions. Russian pipeline gas has been a reliable source of supply in terms of both quantity and prices since the 1970s,” the CEO said.

U.S. LNG cargoes “much too expensive”

European buyers need to compete with those in Asia for LNG if they wanted to secure supply from the world market, Schäfer noted in the speech.

“If Asia is paying high prices for LNG, the tanker ships immediately alter their course for Japan or China. And LNG prices often fluctuate sharply over a very short period of time,” he said.

“If in the future Europe wants to supply itself predominantly with LNG, it needs to be prepared to compete with Asia in terms of price,” Schäfer added.

However, even compared with European spot prices for gas, U.S. LNG cargoes “are much too expensive.”

“On a total cost basis, U.S. LNG prices are currently between €5 and €10 per MWh – or up to 50 percent – above the reference prices in Europe,” Schäfer said, adding that “hardly anyone wants to pay this premium.”

According to the CEO, this is reflected in the amount of U.S. gas supplied to Europe. Since the U.S. began exporting LNG early last year from Cheniere’s Sabine Pass liquefaction facility in Louisiana, 155 U.S. LNG ships have put to sea.

“Only 17 of them arrived in Europe. The rest went primarily to South America, India, or China – in other words, to destinations with low transport costs or higher prices,” Schäfer said.

He went on to say that Europe’s regasification capacity was largely idle with only about one fourth of Western Europe’s available regasification capacity had actually been used recently.

“So far this year, only about 30 bcm of LNG has been supplied to Europe, of which only 1.2 bcm came from the United States. As a reminder, Europe currently needs to import 200 bcm of gas per year, a figure that is trending higher,” he said.

“I believe that these few numbers alone indicate how far Europe is from meeting its needs predominantly with LNG from the United States. I remain convinced that both types of gas supply – pipeline and LNG – will continue to have their respective function and justification in tomorrow’s global gas market,” the CEO said.

How can gas become renewable?

According to Schäfer, it is obvious that natural gas will serve as one of the main bridges to renewables.

“That’s one of the reasons why it makes sense to talk about how gas can become renewable. Then we could continue to use the entire existing infrastructure for gas transport and storage and for power and heat production, which would help reduce costs,” he said.

This is particularly obvious for gas produced from renewables.

Power-to-gas (P2G) plants use electrolysis to transform surplus wind power into gas, which is injected into the gas pipeline system and can thus be used at a later time and in a different place: at industrial enterprises, in power production, and as a fuel for space heating or transport.

“It can be stored in the existing natural gas infrastructure and is therefore attractive from an efficiency standpoint as well,” the CEO said.

“P2G could become a key technology for the energy transition. For this to happen, however, policymakers need to pave the way for this technology to be economic on an industrial scale. Only then can the integration of renewables by means of green gas really begin to pick up pace,” Schäfer concluded.

LNG World News Staff