Last month, French President Emmanuel Macron accused the United States of “double standards” because of the difference between the price at which liquefied natural gas produced in the United States sells in Europe and the price at which natural gas sells. sells in the United States.
“The North American economy makes choices for the sake of attractiveness, which I respect, but they create a double standard,” Macron said, also adding that “they authorize state aid of up to 80 % on certain sectors whereas it is prohibited here”. – you get a double standard.
He was not alone among European national leaders unhappy with gas prices. In fact, up to 15 leaders were unhappy and they insisted that the EU impose a price cap on all natural gas imports, regardless of their origin. The idea followed delicate attempts to convince Norway to sell its gas at a discount and equally delicate attempts to convince American producers of the same. Now the United States is hitting back at the accusations.
“What’s happening is the companies that have these long-term contracts with US LNG producers, they’re marking that and earning that margin in the European market,” said Brian Crabtree, deputy secretary at the Department of Energy. , Told the Financial Times. “It’s not the US LNG company, it’s basically oil companies and international traders headquartered in Europe.”
Indeed, the producers of liquefied natural gas do not systematically sell their product directly to the consumer, facing a European country for example. They work with commodity majors such as Vitol and Trafigura, or the supermajors including BP and Shell.
Take Cheniere Energy, the largest LNG producer in the United States. Earlier this year, Cheniere ink a long-term sale and purchase agreement for its LNG with Chevron. As part of the agreement, Chevron will purchase 2 million LNG from Chevron per year and then resell it at a price it deems fair.
Also this year, Cheniere firm another sale and purchase agreement also with the Norwegian Equinor, this time for an annual volume of 1.75 million tonnes of LNG. These 1.75 million tonnes will also be sold at a price set by Equinor, not Cheniere.
This is not to say that LNG producers do not benefit from the much stronger demand for LNG in Europe. And that is exactly why they have benefited, in the form of higher profits: demand has increased, and when demand increases, prices follow, especially if supply is not growing as fast as demand. .
Related: Big Oil isn’t dancing to government tunes. Period.
Earlier this month, Cheniere Energy reported doubles the growth of its turnover and its profits in the third quarter, thanks to this stronger demand for its product. Separately, the company said it was prepared to sign longer-term supply contracts, both with companies and governments in Europe, which would drive its planned capacity expansion.
At the same time, BP recorded exceptionally strong performance in its gas trading unit. However, this was not the case for Shell, whose gas trading division Reserve a loss of $1 billion for the third quarter of the year due to soaring gas prices in Europe after the suspension of exports via Nord Stream 1.
Macron’s accusations – and others – are therefore not exactly based on fact, with the producers only the first stop in a supply chain that includes intermediaries who are among the largest trading companies in raw materials in the world. Moreover, even in the best of times, US LNG has been more expensive than the pipeline from Russia in real terms.
The reason is purely physical. Producing liquefied natural gas is a much more complex process than purifying natural gas and sending it through a pipeline. Because LNG production is more complex, this automatically means it is more expensive as it is quite energy intensive.
Once produced, this gas must be transported on tankers which are also in short supply this year, which has pushed freight rates through the roof, increasing the expense of traders to ship the product to customers.
In other words, Europe seems to want corporations to not act like corporations and seize every opportunity to make a profit, which is what corporations exist for. But instead of going to those companies, many of which are based in Europe, as DoE’s Crabtree told the FT, he’s going to the US federal government, which has little control over the private sector.
Either way, Crabtree told the FT that the US is committed to helping Europe get enough gas “at a price the continent can afford”. It’s no surprise that he didn’t explain in detail how this affordable price would be achieved. Nor is it surprising that his statements to the FT contain a warning.
“It is therefore of particular concern to us that the discussion in Europe is presented as if we have some control over the margins that are earned on our LNG, because that is not the case,” the official said.
By Irina Slav for Oilprice.com
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