New LNG Projects in US, Europe to Be Supported by Russian Gas Fears -- Market Insight

Commentary by Adam Clark

Russia's invasion of Ukraine is prompting a spike in natural gas prices which should boost U.S. production of liquefied natural gas but could also revive European plans for LNG terminals. While Russian exports of gas --which normally account for 30% of European demand-- haven't yet been blocked, the possibility of disruption caused by conflict or financial sanctions are exacerbating the energy crisis in Europe. Dutch TTF gas prices, the European benchmark, are around 100 euros a megawatt hour, up from EUR16/mwh a year ago.

U.S. gas producers such as Cheniere Energy and Range Resources are likely to be short-term beneficiaries as Europe imports gas from alternative sources. Both stocks are up more than 25% in 2022 to date. While currently U.S. LNG exports are running at almost full capacity, analysts at consultancy Wood Mackenzie note European buyers are now likely to be more willing to sign long-term contracts which will support new U.S. production facilities.

Over the longer term, European companies will have a stronger incentive to build LNG import terminals, as they scrap deals with Russia such as Shell's exit from joint ventures with Gazprom, including its stake in the Sakhalin 2 LNG project. S&P Global Platts reported Monday that Germany's Uniper is considering restarting work on a floating LNG import terminal at Wilhelmshaven in northern Germany, having previously shelved the plan due to a lack of long-term booking interest.

Market Insights are commentary that is independent of the news coverage by reporters at The Wall Street Journal.

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