The American liquefied natural gas industry is expected to face increased competition in the European energy market next year, as Algeria and Russia look to expand their supply on the continent.
Despite opposition from the United States, Russia's Nordstream 2 pipeline into Germany is expected to be completed by the end of June, S&P Global Platts said Friday. That follows the Trans Adriatic Pipeline coming online last month, increasing capacity between the Caspian Sea and Italy.
With European gas demand down because of the coronavirus pandemic, U.S. LNG facilities are expected to operate at only a fraction of their capacity. "U.S. LNG is going to find itself outside looking in and struggling to compete," said Chris Midgley, global head at S&P Global Platts Analytics.
"This summer, we saw LNG facilities in the U.S. reducing down to 40 percent (of their capacity), and we expect to see much of the same next year. The economics don't make sense for people to lift and move LNG right now."
Existing LNG operations along the Gulf Coast can fall back on long-term contracts, which require customers to pay for the supply whether they take possession of it or not. But the situation in Europe raises questions about the viability of future U.S. LNG projects.
According to the Federal Energy Regulatory Commission, seven LNG export facilities were operating in the United States as of September, with five more under construction. Another 15 are under development, six to be located on the Texas Gulf Coast, raising the question of whether there's enough gas demand globally to keep them all going.
According to the U.S. Energy Department, U.S. LNG exports fell to 150 billion cubic feet in September, down more than one-third since the beginning of the year. And competition is increasing overseas, with global LNG export capacity growing 3.5 percent last year, according to S&P Global Platts. Meanwhile, with European demand expected to remain low, getting American LNG to growing Asian markets has become increasingly difficult.
A bottleneck of ships in the Panama Canal is forcing many tankers to go around South America, delaying Asia-bound LNG delivery, Midgley said. "They're going to have to factor in the additional cost of not having the Panama Canal," he said.