Sputnik discussed US plans to export liquefied natural gas to Europe with Matt Smith, the director of commodity research at ClipperData.
Sputnik: Who will pay for the infrastructure required to accept deliveries of US liquefied natural gas in Europe? And how much would it cost, in your opinion?
Matt Smith: If we are going to see the construction of these LNG import terminals in Europe, that's going to be driven by economics really, it is going to be the commercial value of producing them. There are already about 24 LNG terminals in Europe, but they're running at about a quarter of their capacity and so even though President Trump has said that the EU and the US have agreed that there are going to be these 11 LNG terminals constructed, (there aren't) actual actionable items here.
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Sputnik: Is it likely that American liquefied natural gas will be in demand for European clients?
Matt Smith: It isn't, to be honest, we've seen US LNG exports quadruple in the last year. They started up in early 2016 and they have ramped up to about to 2 Bcf a day. The thing is we're expecting them to get to about 10 Bcf a day by 2020, so there's going to be more supply available to be exported. All that said, at the moment I think we see about half of US exports heading to China, South Korea and Mexico, Mexico is the leading destination there. We don't currently see very much US LNG heading to Europe at all, we see the odd sporadic cargo going to the likes of Italy, but really it just isn't a destination at the moment for US LNG.
Sputnik: So can we say that it was a political move?
Matt Smith: Yes, I think what we have with President Trump is that sometimes he makes suggestions and it's more sort of wishful thinking more than anything. The thing is, the price of natural gas in the US is really very cheap, at $2.75 per mmBtu, we've been around that level for the last few years, even though demand has continued to be strong. So I think because of the low price of LNG, there is just the assumption that we should be able to sell that off into the global market and meet the potential need for a region that is looking to diversify its supplies.
Sputnik: In your view what countries could be involved in this project?
Matt Smith: It's really going to depend on where the commercial need is, as I've mentioned we've already got 24 LNG terminals that are in place here now using very little of their actual import capacity, and so there are a number of countries that already have the import terminals in place. We could see a new one perhaps in Croatia or something like that, but really, the visibility for 3 or 4 of these terminals being built is the absolute maximum, talking about 11, it's just not really going to happen.
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Sputnik: Where in Europe do you think the main ports for American liquefied natural gas could be built or is it possible to use the existing ports?
Matt Smith: Yes, it's definitely possible to use the existing ports because there's just so much capacity there, so you could see more going into the likes of the UK, but in terms of the destination for this LNG there's so many different places that it can go into where it's going in sporadically at the moment, but there just really isn't that pick up for it, and so we could see more going into the Netherlands, or to Portugal, into Spain, but we're just not seen that at the moment because of the economics; they're just not there. Ultimately everything in the world to a large extent is driven by economics and when you have Russian gas that is about $5mmBtu it doesn't matter if US LNG is below $3mmBtu when that liquefaction, transportation, and regasification process costs way more than that $5 on the total to get it into Europe.
Sputnik: How do you think economic relations between the United States and the European Union will develop in the future?
Matt Smith: Well, I think we saw some of the tension dissipate last week with the meeting with President Trump and EU's Juncker, the concern probably is more from a Chinese perspective in terms of a trade war. I think in terms of the economic relationship between the EU and the US, we should be fairly plain sailing at the moment, taking the auto industry outside of that, just because there is the rhetoric, the conversations being had here, but that's not to say that it's going to be the same with all the other countries in the world, because we continue to see tensions and trade war talk escalating with the likes of China.
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