US LNG export dominance put to the test as European demand grows

The United States remains the largest exporter of liquefied natural gas (LNG) in 2024, but a sharp decline in selling prices and wide swings in export volumes to key markets are likely to test exporters’ willingness to maintain their leading position.

The United States shipped a record 56.9 million metric tons of LNG in the first eight months of 2024, according to Kpler.

That outpaced Australia’s 54.3 million tonnes and Qatar’s 53.7 million tonnes during the same period, marking only the second consecutive year that U.S. exporters have topped the global export rankings.

However, a decline in average LNG export prices of more than 25% in the first half of 2024 compared to the first half of 2023 dealt a major blow to export revenues, which fell by $4 billion from the first half of 2023 to $13.2 billion, data from the U.S. Energy Information Administration (EIA) shows.

It was the lowest total revenue for the half since the first half of 2021 and represents a decline of more than $12 billion compared with the second half of 2022, when U.S. LNG export revenues peaked.

Compounding the problem of plummeting revenues was a sharp reorganisation of export volumes to key markets, with deliveries to relatively close markets in Europe falling by more than 20%, while sales to more distant markets in Asia rose by more than 40%.

Still weak LNG demand in Europe and continued growth in Asia could test the resolve of U.S. exporters to remain the world’s largest LNG sellers, as deliveries to several distant Asian markets could be cheaper than other sellers.

The Rise and Fall of Europe
The surge in LNG demand in Europe since Russia’s invasion of Ukraine in 2022, which disrupted natural gas pipeline flows to the region, has been a major catalyst for the growth of the U.S. LNG export industry.

According to Kpler, between 2018 and 2021, average annual exports of US LNG to Europe were around 15 million tonnes, but in 2022-2023 this increased to around 55 million tonnes per year as European energy companies sought to replace lost Russian gas resources by all possible means.

American exporters have eagerly helped fill the gas gap, increasing their total export volume by 95% over 2019 by the end of 2022.

Europe’s share of total US LNG traffic has also roughly doubled, from around 37% in 2019-2021 to almost 70% in 2022.

A drop in deliveries to Asia of about 44% in 2022 compared to a year earlier allowed U.S. LNG sellers to prioritize Europe over all other customers and take advantage of the unprecedented supply shock that rocked global gas markets during that period.

Cooling down
US LNG deliveries to Europe reached an even higher level in 2023, but the tonnage changed in 2024, with deliveries falling 22% from January to August compared to the same months in 2023.

A key factor behind this slowdown was the rapid growth in renewable energy production in Europe, which will remain a priority for European energy companies in the future.

According to Ember, the share of solar and wind energy in electricity generation in Europe will increase from around 16.4% in 2022 to 20.5% in 2024.

To make room for more renewable energy production, the share of energy generation from fossil fuels has fallen from about 44.6% in 2022 to 36.6% this year.

Coal-based power is the main source of fossil energy that has been reduced in Europe, but natural gas’s share of power generation has also fallen from around 26% in 2022 to 22% this year.

Bolt
Lower gas demand in Europe is bad news for US LNG exporters.

To compensate for lower sales in Europe, U.S. exporters may try to gain market share in Asia, which is a clear silver lining for global gas sellers.

However, other major exporters, including Qatar and Australia, enjoy much shorter transport distances to major Asian markets, as well as competitive prices for liquefying the gas.

For example, LSEG data shows that a shipment from Cove Point in the US to India can take five times longer than from Ras Laffan in Qatar.

Australia can deliver LNG to southern China in less than nine days, compared with 35 days from the US east coast.

The U.S. LNG tanker fleet is capable of covering such long distances, but the extended lead times will erode exporters’ profits and could cause the LNG export sector to limit deliveries to only the largest customers.

Greater concentration would help protect sector profits but could result in the United States losing its position as the largest LNG exporter to major rivals that already have expansion plans to serve fast-growing local markets.

(Reuters – The opinions expressed here are those of the author, Gavin Maguire, a Reuters columnist. Editing by Jamie Freed)