Asininity is Believing the *EU* Will Buy More US LNG

Actually, European countries are not among the most profitable destinations for American LNG.

Ho-hum, here we go again. After the supposedly triumphal meeting between Trump and EU Commission President Jean-Claude Juncker, The Orange One loudly exclaimed that Europeans would buy lots more natural gas in the form of liquefied natural gas (LNG). Recall that LNG is the product of, well, liquefying natural gas for the purposes of transporting it over long distances--usually overseas--when pipelines are physically or economically unfeasible to build.

That said, there are additional costs incurred by both sellers and buyers in handling gas-to-liquid and liquid-to-gas conversions, respectively. Therein lies the rub this time: given current efficiencies, it doesn't make much economic sense for Europeans to buy American LNG. Let's begin with the (sadly) expected Trumpian hyperbole:

President Donald Trump’s plan for “vast amounts” of U.S. liquefied natural gas (LNG) to be sold to the European Union after trade talks with its top representative faces a reality test...“European Union representatives told me that they would start buying soybeans from our great farmers immediately. Also, they will be buying vast amounts of LNG!,” Trump wrote in a Tweet.

But alas, such is not the case. Given the greater distances involved, European destinations are not quite economically viable for trade in LNG. Locations near Western Europe cost lower given advantages of geographic proximity and a cheaper way of transporting natural gas--through pipelines that do not require conversion of gas into liquid form and back again; e.g., Trump's favorite Russian pipelines:

It appeared that a major LNG deal between the trading partners had been struck. 

In reality, three-quarters of Europe’s existing import facilities lie empty while demand for U.S. LNG on the continent remains limited. The most lucrative markets for U.S. LNG are in South and Central America, India and the Far East, with Europe near the bottom of the pile given its relatively low prices and ample supplies of gas via pipelines from Russia and Norway.

We come around to the same issue concerning the similar Trump-Juncker "agreement" with soybeans discussed in an earlier post. The last time I checked, the European Union was composed of 28 (soon 27) sovereign nations that don't take orders on where to buy energy from, least of all the European Commission. Short of EC subsidies, market access to American LNG is already as good as it gets since tariffs on LNG are essentially zero:

“Will U.S. LNG reach Europe? Yes, but only if there is an arbitrage opportunity that makes sense,” he said. Politicians have little sway over this. The EU applies zero tariffs on U.S. LNG imports, so cutting them is not an option to boost trade in any future U.S.-EU talks.

The EU-28 are not command economies like China where you can rely on an apparatchik to make state-owned firms buy US LNG if agreed to. So, even European gas projects in America may find it more economically feasible to sell to nearby markets given the aforementioned costs that increase with distance:

A number of European companies have already announced plans to buy LNG from a new wave of planned U.S. projects. Portugal’s Galp, Italy’s Edison, Britain’s BP and Royal Dutch Shell are all lining up to lift LNG from Venture Global’s planned Calcasieu Pass project in Louisiana. But supply from these and other projects will not be ready for years and even then there is no guarantee it will come to Europe in meaningful quantities if more lucrative markets, such as China, emerge.

 
There. Another day, another Trumpian verbal vomit cleaned up.