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US Gas Will Never Replace Russian Gas For Europe

Tyler Durden's picture




 

As The FT reports,

Charif Souki, Cheniere’s chief executive, said that the idea of his company’s exports alone liberating Europe from Russia’s Gazprom was “nonsense” and that only six to eight of 20-plus proposed rival export projects were “real”.

 

...

 

The east-west stand-off over Ukraine has sparked a political debate over whether the US should loosen its energy export restrictions so Europeans can buy liquefied natural gas, or LNG, from America’s shale energy boom.

 

Asked if Cheniere’s terminal could rescue eastern European countries from their dependence on Russia, Mr Souki said: “It’s flattering to be talked about like this, but it’s all nonsense. It’s so much nonsense that I can’t believe anybody really believes it.”

Submitted by Chris Martenson via Peak Prosperity,

Recent entreaties by various US politicians to help wean Europe off of Russian gas are simply preposterous.  The numbers don't add up, and they never will.

Let's begin with the facts:

16% of natural gas consumed in Europe flows through Ukraine

 

Mar 14, 2014

 

Europe, including all EU members plus Turkey, Norway, Switzerland, and the non-EU Balkan states, consumed 18.7 trillion cubic feet (Tcf) of natural gas in 2013. Russia supplied 30% (5.7 Tcf) of this volume, with a significant amount flowing through Ukraine. EIA estimates that 16% (3.0 Tcf) of the total natural gas consumed in Europe passed through Ukraine's pipeline network, based on data reported by Gazprom and Eastern Bloc Energy.

(Source)

If the US wants Europe entirely off of Russian natural gas (NG), it will have to immediately replace 5.7 trillion cubic feet per year, or 15 billion cubic feet per day.

The entire set of US shale gas plays, which consist of 8 major plays and a slew of minor ones, cumulatively provide the US with 27 billion cubic feet per day.  That is, just over half of the entire current US shale gas play would have to be dedicated to the European cause of eliminating Russian natural gas dependency.  

And even with the shale plays, in April 2014 the US remains a net gas importer. In 2013, the most recent full year of data, the US had to import 1.3 trillion cubic feet to satisfy domestic consumption.

More pointedly, 2013 was a pretty cold winter, the kind that comes along every so often, and the US barely made it through that period without running dangerously low on NG as it was.  

To make it through the heavy demands of winter natural gas must be stockpiled in advance. As a result, the gas storage report always shows seasonal builds and draw downs of natural gas:

(Source)

In all my years of watching the energy statistics I've never seen NG storage get this low. Look how far below the average 5 year range it got...all the way down to just 800 billion cubic feet in storage.

And this was with the "shale gas miracle" chugging along merrily in the background.

If the US had magically managed to have the appropriate liquefied natural gas (LNG) terminals all built and had wanted to completely supply Europe with US gas to replace Russian gas, it could have only done so for 53 days (800 bcf/15 bcf/day) before the US would have completely run out of its gas in storage.

Of course, this could never be done. If NG ever gets too low in storage, you run the risk of having the pressure drop in all the associated pipelines and delivery systems to such a low level that things have to be shut down. Pilot lights go out, system pressures falter in some areas before others, turbines can't be run, and industrial processes terminate.

If you thought the winter of 2013 was hard, imagine it with the added specter of having to re-light every residential pilot light in a region.  There are not enough service people to do that.

And well before a crisis moment like that arrives, a form of utility triage would be implemented; Step 1 of which would be shutting off exports of LNG to Europe and any other ex-US destinations.

What then would Europe do?  Freeze and suffer through its own chain of shortage-related failures because the US could not actually supply what was needed?

What would quickly happen is that Europe would return to Russia for at least part of its gas needs.  So all that the US could ever do, realistic or not, is supplant some of Russia's role as NG supplier to Europe.

Rising US Production

At this point, some might say that the ability of the US to export natural gas will rise because US domestic production is rising.  While true, two things weigh on this view to render it moot.

The first is that European domestic gas production is falling. Norwegian production is going down, and North Africa remains a mess that cannot be counted upon to reliably increase its production over its consumption over any time frame you care to choose.  So rising US production will be countered by rising US demand and falling European production, both of which will erode the apparent 'surplus' in the US that so many are (innumerately) counting on.

The second is because liquefying natural gas is enormously energy-intensive and expensive.  To ship vast quantities of natural gas across the Atlantic, we'd need to liquefy it first. Fully 25% of the energy embodied in natural gas (NG) is wasted during the process of turning it into a liquid (LNG).  That energy is simply gone: those expended BTUs cannot ever be used for anything else.

So when it's noted that Russia supplies 5.7 trillion cubic feet, that's of ordinary gas in its rightful gaseous form (NG).

The equivalent in US gas would be (5.7/0.75) = 7.6 trillion cubic feet (of NG) to account for the energy loss in the liquefying process (to make LNG).

In short, LNG is just an energetically stupid thing to do. It is wasteful.

Economically Unworkable

The final nail in the "US will supply Europe's gas" coffin is simple economics.

US LNG could be produced and shipped for about $9 per thousand cubic feet.  Russia produces theirs for $.50 for the same amount and can sell it for a price well below $9 for as long as they wish.

People investing in an LNG terminal are tying up billions and billions in the project. They cannot invest in such a project because Europe might need gas for the next 2 or even 20 months because of temporary hostilities with Russia. They need 20 years of expected profitable sales to justify the expense. 

Who thinks that the West is in any position to place a 20+ year permanent ban on Russian energy exports to Europe?  Anybody?

A sanctions regime is the only thing that would make LNG from the US to Europe an economically workable proposition.

The truth is, there are a great many voices asking for LNG to be exported from the US but the real reason has nothing to do with Russia or Europe.  The real reason is that the domestic NG industry would love to get much higher prices for their product than they are currently getting and LNG terminals is one way to help level the price playing field between the US and the rest of the world.

Europe won't get its independence from Russia, but US consumers will pay more.

Conclusion

There's nothing sensible about the recent attempts to link US LNG exports to freeing Europe from its dependence on Russian NG.

The numbers just don't work.

Worst of all, those proposing such schemes seem delightfully unaware that even the robust quantities of NG that the US seems to have are also finite, and that you get to use the embodied energy exactly once.  But that's it.

Use that energy to liquefy the NG in LNG and you cannot then use that energy to make fertilizer, or erect a new electrical pylon, or build out a next generation mass transit system, or rebuild depleted soils.

By this viewpoint, calls to turn our domestic NG into LNG are ignorant at best; a crime against future generations at worst.  Perhaps they're both.

But have no fear, Europe is not staffed by ignorant dummies and they will not risk their present and future prosperity by cutting off Russian imports of NG simply to appease US policy hawks or help the sitting president achieve some sort of political victory back home.

So it's highly unlikely that Europe will be clamoring for US LNG to the point that it would agree to a 20-year ban on Russian NG exports.  Given this, it's doubtful that the Ukrainian situation will translate into any significant actions on the US LNG front.

 

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Sun, 04/20/2014 - 18:52 | 4678104 LetThemEatRand
LetThemEatRand's picture

But we the People of America own our natural gas under our land and water and it won't just go the highest bidder to profit some multi-national oil company and banker investor/gas trader to fuel someone else while we pay higher prices at home as a result, right?

Sun, 04/20/2014 - 19:09 | 4678138 Latina Lover
Latina Lover's picture

It's sad when US politicians believe their own lies.

Too much floride, sex with underage children, satan/moloch worship etc rots their brains.

 

 

 

 

Sun, 04/20/2014 - 19:11 | 4678156 knukles
knukles's picture

Oh pshaw...
We got enough gas, it's economically and cleanly produced, leaves no pollutants when burned, there are a bazillion unused pipelines running between the US and Europe, so capacity is no problem, it makes sense, it will scare the bejesus out of Vlad, the French will love us more than they already do and the EU will buckle under to energy independence upon America. 

Sun, 04/20/2014 - 19:21 | 4678172 negative rates
negative rates's picture

But the war is still on right?

Sun, 04/20/2014 - 20:26 | 4678296 HardlyZero
HardlyZero's picture

150 troops to Poland vs. 40000 at the East Ukr border; that's 266.6:1 advantage to Vlad.

 

Maybe its all virtual and symbolic at this stage (since there is little can actually accomplished).

Paper plans, paper tiger.

Mon, 04/21/2014 - 04:23 | 4678812 MeMadMax
MeMadMax's picture

Hey I know!

Build a "shallow" submerged pipeline to Spain!

Make the maximum depth of the pipe around a hundred feet so you don't sink it all the way to the ocean floor and away you go!

=P

Sun, 04/20/2014 - 20:23 | 4678289 StupidEarthlings
StupidEarthlings's picture

+100

 

" “It’s flattering to be talked about like this, but it’s all nonsense. It’s so much nonsense that I can’t believe anybody really believes it.”"..

 

This is what I thought after just reading the headline. 

You cant tell me that this is considered news..at least to a zh-er anyway..jeez.

Sun, 04/20/2014 - 20:29 | 4678300 HardlyZero
HardlyZero's picture

It is good to see the numbers and facts.

Facts usually spell disaster for fiat based economies (all the details).

Mon, 04/21/2014 - 02:00 | 4678750 Andre
Andre's picture

Actually I heard this from the "we can do it" side a few days ago.

Somebody who knows somebody at the State Dept (!?) claimed the US could do this (keep the EU supplied with NG) for at least 10 years, enough to break the Russian economy. "The US will simply outlast a Russian embargo".

This is an actual quote. The numbers in the article speak volumes about the US thinking involved.

Sun, 04/20/2014 - 20:12 | 4678267 Escrava Isaura
Escrava Isaura's picture

LetThemEatRand,

Brilliant!

Now, let’s hear from the free-market advocates how to screw Americans even more.  

Sun, 04/20/2014 - 18:55 | 4678115 Super Broccoli
Super Broccoli's picture

1. US don't produce enought

2. how many super tankers would it take to ship the whole thing ?

3. what kind of huge habor infrastructure would it take europe and US to build ?

naaaah be fair, even if you could overcome all of those problems, that would take 20 years just to set this up

Sun, 04/20/2014 - 19:49 | 4678222 Haager
Haager's picture

Finally someone mentioned the necessary tankers - and what about the  shipping frequency just to meet 1/20th of the demand...

A no go - without the crimean gas fields and the yet to build new fracking places in Ukraine... Oh, wait...

Sun, 04/20/2014 - 19:00 | 4678127 Squid Viscous
Squid Viscous's picture

A popular theme among neo-con, energy $ addicted congress critters... scum of the earth

Sun, 04/20/2014 - 19:01 | 4678131 LetThemEatRand
LetThemEatRand's picture

It's because they are trying to benefit Americans by selling more of our natural resources, right?

Sun, 04/20/2014 - 19:12 | 4678158 CrashisOptimistic
CrashisOptimistic's picture

Well, hanging on to what you have for yourself is a tried and true concept that is human nature.

Unless the Russians or Saudis decide to do it.  Then it's terrorism

Sun, 04/20/2014 - 19:19 | 4678167 LetThemEatRand
LetThemEatRand's picture

As far as these guys are concered, it is their oil/gas.  It just happens to be located under the land/water of the population they rule.

Sun, 04/20/2014 - 21:16 | 4678392 CrashisOptimistic
CrashisOptimistic's picture

See, I thought you were saying:

The way the US consumer thinks, it's their oil and gas.  It just happens to be under the land of someone else's country.

Mon, 04/21/2014 - 04:55 | 4678831 SGKid
SGKid's picture

Why is there a need to sell? Just give it away!

The US of A can print any amount of dollars they want right?

100 Trillion dollar note anyone?

Sun, 04/20/2014 - 19:03 | 4678133 Number 156
Number 156's picture

Yep, I agree. The United States doesnt produce anything anymore, all thats left is whatever natural resouces they can dig out of the ground.

Could it be that the reason why children in the USA are being taught about 'being green', is because the Oligarchs there would sooner have everyone living in grass huts, cooking their meals on mirrors so they can strip whatever is left and send it overseas.

Sun, 04/20/2014 - 19:02 | 4678134 rocker
rocker's picture

They are still and will probally blow off, (burn), natural gas as it is not really the gas they want. It's the Oil.  Hell, even Pickens couldn't get DC off their asses to use what they blow off.

LNG is way off in the future simply because we don't have the infrastructure to supply it to somebody else. Especially over water.

Sun, 04/20/2014 - 19:02 | 4678135 NoWayJose
NoWayJose's picture

US cannot export gas because Obama has stopped or slowed down drilling, pipelines, refineries, and any other infrastructure for energy. His enviro-squad will not let him do what will need to happen.

Sun, 04/20/2014 - 19:11 | 4678154 CrashisOptimistic
CrashisOptimistic's picture

Obama has not done any of that.

Production is not what you'd like it to be for a far more sinister and horrible reason than Obama.

It hasn't happened because it's not there.

Sun, 04/20/2014 - 19:05 | 4678142 Spungo
Spungo's picture

I don't want to sound cunty, but can't Europe fix this "problem" by building some nuclear power plants? We have thousands of years worth of thorium energy that has not been tapped into. They could also start building some wind mills and upgrading insulation.

 

Putin is a true keynesian hero. All of this hate directed at him gets people to focus on building shit and upgrading infrastructure.
https://www.youtube.com/watch?v=sKmvkIVZ5Ls 

Sun, 04/20/2014 - 19:09 | 4678151 CrashisOptimistic
CrashisOptimistic's picture

Thorium is not a new idea.

It has been examined for decades.

It has not been embraced for physics reasons, not for conspiracy reasons. 

So that's that for that.

Sun, 04/20/2014 - 19:51 | 4678227 knukles
knukles's picture

Or they could fend for themselves or trade us foie gras for dirty coal.
From the Iran backwaters of reactionary progressive central Appalachia.  

Sun, 04/20/2014 - 19:08 | 4678149 rsnoble
rsnoble's picture

Remember we've entered a new paradigm.........it's not about tangible gas it's about 'words' and what's being said about it that matters.  Nevermind freezing your fucking ass off in the meantime it's on the way.......we promise.

Sun, 04/20/2014 - 19:13 | 4678160 cro_maat
cro_maat's picture

But when the Fed prints infinite Fiat $ and energy companies can borrow at 0% interest then who needs the project to make sense?!

Remember when we use to use the IMF to enslave 3rd world countries with debt so that they would bring in US multinationals to build infrastructure that they didn't need? Well we have been shaken down to 3rd world status and now are being IMF'd by BernankaYellon.

Hedge accordingly.

Sun, 04/20/2014 - 20:33 | 4678312 Escrava Isaura
Escrava Isaura's picture

Cro_maaat

Pretty good summarization.

I would add 3rd world resources and labor arbitrage.

Sun, 04/20/2014 - 19:15 | 4678161 Quinvarius
Quinvarius's picture

We couldn't even supply Germany with their own gold.

Sun, 04/20/2014 - 19:22 | 4678174 LetThemEatRand
LetThemEatRand's picture

Same theme as the oil/gas.  The gold doesn't belong to Germany.  It belongs to the bankers who use it as collateral or for hookers or whatever the hell else they use it for.   So when the German people ask for their gold back, the bankers say "yeah, right.  We'll let you know."  

Sun, 04/20/2014 - 20:34 | 4678308 HardlyZero
HardlyZero's picture

Don't know the numbers, but Nord Stream completed in last few years has two (48" ?) pipelines under the Baltic Sea with a direct connect between Russia and Germany.  Nord Stream is the World's longest underwater natgas pipeline.  So Germany is probably OK with or without the Ukraine, and Germany may be OK without the EU for that matter.

50% of Germany's imports are Russian fuels, not sure how much of that is by Nord Stream...but it is probably a good chunk.

Sun, 04/20/2014 - 20:42 | 4678331 LetThemEatRand
LetThemEatRand's picture

That's weird, because the Nordic countries largely recognize that the gas belongs to the People and actually use the revenue to benefit their population, thus enabling one of the highest standards of living the world for their population.  Must be a fluke.  Better to let the oil and gas revenues flow almost entirely to private enterprise to, you know, trickle down.

Mon, 04/21/2014 - 04:37 | 4678821 Gunter
Gunter's picture

That is correct, Hardly, we have two pipes around 48" diameter from Russia to Germany. I don't know the exact percentage of our gas coming through right now. But I know that only one of those two pipelines is being used so far. Using both would probably be enough gas for Germany if we kept it for ourselves and would not send it to other EU countries.
Too bad the politicians even decided to pump gas from Germany to Ukraine now. How stupid is that?

Mon, 04/21/2014 - 05:03 | 4678834 SGKid
SGKid's picture

The problem with Germany is that they want their gold back in PHYSICAL METAL!!!???

Obama could have fedex the paper version back in a day!

Why are the Germans being so difficult?

Sun, 04/20/2014 - 19:33 | 4678191 dunce
dunce's picture

The supercilious, arrogant, condesending, disdainful Europeans can go fxxx themselves. We do not need to exhaust our resources so they can continue their nonsense. So what if we have 100 years of reserves, what are we going to do then? Pie in the sky forever?

Sun, 04/20/2014 - 19:46 | 4678214 sangell
sangell's picture

Nobody is suggest the US replace Russin gas we need only replace a portion of it with US productioni which is quite possible. In fact is it the reason Cheneire energy is building its Sabine Pass terminal. He realizes he can sell LNG profitably to Japan and has signed contracts to do that. Dominion Resources is opening up its Cove Point, Md. facility to LNG exports not to drive Gazprom out of the business but to take advantage of the high prices Gazprom can charge in Europe because it has little competition. If Dominion can take 5% of Gazprom's exports to Europe then that's 5% Gazprom doesn not get and Dominion does. Its a reasonable bet that half of Russia's gas supplies to Europe can be replaced by other exporters.

Sun, 04/20/2014 - 21:29 | 4678412 Omen IV
Omen IV's picture

Bullshit !

the russians have the marginal cost position forever !!!!

no one compressing / depcompressing and wasting up to 30% energy in the process can be competitive ....plus the shipping - give me a break - and invest billions?

Japan has whole different structure for marginal cost

Sun, 04/20/2014 - 20:29 | 4678302 rsnoble
rsnoble's picture

So should we all pile into gas futures tomorow am?  Surely the HFT's, or what's left of them, have smoke pouring out from underneath them.

I've about had it with profiteers.  You can knock it off with the free market bullshit because none of you fucking peons saying that crap are going to benefit and most likely get fucked.

Mon, 04/21/2014 - 01:08 | 4678707 Rock On Roger
Rock On Roger's picture

No wonder you silly buggers are broke.

You hire a service man to light a pilot light?

What happened to Bic?

 

Stack On

Mon, 04/21/2014 - 02:01 | 4678753 StychoKiller
StychoKiller's picture

Most modern water heaters and furnaces use a piezio-electric device to ignite fuel, not pilot lights.

Mon, 04/21/2014 - 01:17 | 4678721 Bobportlandor
Bobportlandor's picture

Right ON. "Only reason is to raise prices here"

 

http://www.eia.gov/totalenergy/data/monthly/#naturalgas

Nat Gas \ Overview \ PDF \ total consumption Vs

Dry Gas Production

 

Mon, 04/21/2014 - 06:53 | 4678904 esum
esum's picture

neva say neva..... 

Mon, 04/21/2014 - 07:06 | 4678927 AdvancingTime
AdvancingTime's picture

Thanks for pointing out the stupidity of this proposal.

Mon, 04/21/2014 - 08:53 | 4679078 dearth vader
dearth vader's picture

>> So it's highly unlikely that Europe will be clamoring for US LNG to the point that it would agree to a 20-year ban on Russian NG exports. <<

Ahem, last Saturday, two representatives of a 'liberal', pro-EU party (D66) in the Dutch House of Commons published an op-ed in a leading, national newspaper suggesting just that. Title: 'We must give up on Putin's gas' (no link available).

I have reason to believe these people can't be completely clueless, but are politically motivated.

Mon, 04/21/2014 - 09:14 | 4679123 SilverMoneyBags
SilverMoneyBags's picture

Once they pass the TTIP and TPP they will most likely authorize the construction of Keystone Pipeline. We aren't keeping any of that gas.

Mon, 04/21/2014 - 09:14 | 4679124 gcjohns1971
gcjohns1971's picture

"US Gas Will Never Replace Russian Gas For Europe"

DUH.

"16% of natural gas consumed in Europe flows through Ukraine"

More - MUCH MORE - I think.  They just don't want to reveal the extent of their vulnerability. Moreover, what has been going on in North Africa, Syria, etc, is EXPANDING dependence on Russia.

Mon, 04/21/2014 - 15:21 | 4680458 VangelV
VangelV's picture

I am sorry but I do not see any evidence of shale gas being economic outside of the core areas.  Whenever the producers talk of production costs they tend to forget about acquisition costs, royalties, and use depreciation schedules that are based on assumed ultimate recovery rates rather than actual rates calcualted from the production data.  I don't know about any of you but I do not see ANY primary shale producer that is capable of generating postive cash flows from operations.  You would think that after more than a decade we would have someone manage it.  

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