As Europe faced a looming energy crisis heading into winter, it turned to an unlikely source to keep its lights on and homes heated: natural gas fracked from wells in Texas and Louisiana.
The European Union largely depends on imported gas, having obtained 83% of its natural gas from abroad in 2021.
Prior to its invasion of Ukraine, which has just passed its first anniversary, Russia was Europe’s largest gas supplier. Amid Western sanctions, Russia has since reduced and then cut its supply of gas to the EU.
In light of these supply issues, Europe was forced to pivot and U.S. liquefied natural gas (LNG) exports to the region surged to unprecedented levels between 2021 and 2022.
According to data from the European Council, LNG imports from the U.S. more than doubled year-over-year between January and November 2022, amounting to over 50 billion cubic meters (bcm).
In Europe, gas is primarily used for power generation, household heating, and industrial processes. By meeting the demand for gas through this record-high importation of fracked natural gas from the U.S., Europe was able to avoid a catastrophic winter season.
Texas, which produces roughly a quarter of the country’s natural gas supply, played a large role in this, as The Dallas Express previously covered. A report from Texans for Natural Gas showed that the U.S. was able to throw Europe a lifeline “largely thanks to Texas energy production and export infrastructure.”
On the one hand, the gas trade has strengthened cross-Atlantic trade ties and elevated the U.S. as a major energy superpower. On the other, concerns linger among European buyers about the consequences of importing large volumes of fossil fuels, according to reporting by The Wall Street Journal.
“Europe’s energy divorce from Russia is nearly complete,” said Andrew Lipow, president of Lipow Oil Associates, per Politico. “We’re seeing a permanent change as far as how Europe gets its energy in the future. One result is the United States and European energy policy are going to be more closely intertwined.”
The European Union has established ambitious objectives to reduce carbon emissions and address the adverse impacts of climate change. Countries in the region have agreed to cut greenhouse gas emissions by at least 55% by 2030 and be climate neutral by 2050.
Yet the process of bringing American natural gas to Europe is a complex one, per the WSJ.
First, the gas must be extracted from the ground in the gas fields of Appalachia and the Gulf Coast.
Reaching the shale gas requires a drilling crew to insert pipes attached to a rock-destroying bit into the ground. This crew digs vertically for about two miles before horizontally boring another two miles through shale. A fracking crew then takes over, utilizing powerful pumps to inject water, sand, and chemicals into the hole to extract the gas by breaking open the shale rock.
After being extracted, the gas is transported through pipelines to a processing plant for treatment.
Water and impurities like sulfur, hydrogen sulfide, and carbon dioxide are removed via processing. Byproducts like propane and butane are also captured for separate sales.
Once the gas is sufficiently treated, the producer pays a midstream company a fee to ship the gas through a national network of 3 million miles of transmission lines. The U.S. has about 1,700 gas compressors, which measure and push the fuel through the pipelines.
Finally, the gas is either shipped to an underground storage, a distribution company, a power plant, or a liquefaction facility, among other destinations.
Around a tenth of all U.S. gas production is exported. In 2021, roughly 70% went to Mexico and 30% went to Canada, according to the U.S. Energy Information Administration (EIA).
In early 2022, this shifted tremendously, with the EIA reporting 74% of its LNG exports going to Europe.
One consequence of this high demand for U.S. gas is an increased push in Europe to develop alternative energy solutions, per the WSJ. The release of methane — a gas that contributes to 20% of global emissions, per the U.S. Environmental Protection Agency, and is the main component of LNG — does not align with the region’s climate law.
“[The absence of Russian gas] has accelerated all our efforts in getting as much as possible from indigenous European [energy] sources, which are renewables,” Maroš Šefčovič, vice president of the European Commission, said in an interview with Politico.
But during Europe’s gas crisis, several European companies had to commit to contract terms of high volumes for approximately 15 to 20 years to guarantee gas supply, per the WSJ. This is the result of flexible clauses in most U.S. export contracts. These allow buyers to send cargo wherever LNG prices are highest.
As a result, the provision of U.S. gas to Europe is expected to steadily go on in the coming years. According to Politico, this will be further aided by new facilities around the Gulf Coast and elsewhere that are scheduled to open soon. They are expected to nearly double overall export volumes of U.S. natural gas.
This is a very nice overview write-up of the NatGas marketplace. Thank you.
I trade Natural Gas and also own oil/gas mineral rights.
Currently, we are in a season when stockpiles of NatGas start getting refilled.
The stockpiles are very full already compared to the 5 year average for this time of year.
Like most commodity products, and stock market type stuff, big money can manipulate or sway prices regardless of fundamentals.
Narrative plays a big role on price structure.
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