Supply chain barriers limit U.S. natural gas sales to Europe

Natural gas problems in Europe have managed to get worse.

First, Russia reduced the amount of gas it sent to the continent. Then it completely stopped deliveries through a single pipeline. Last week, four holes appeared in this pipeline, churning up the waters above and spewing a massive amount of methane gas into the atmosphere.

This is certainly not the kind of news Europeans want to hear, especially as winter approaches.

Pipelines aren’t the only way to get gas to places that don’t have their own supply. It is also possible to transport liquefied natural gas by tanker to Europe from, say, here in the United States, where we have a lot of stuff.

But it’s not just about getting hold of ships and filling them with liquid gas.

“An LNG carrier is very specific for transporting methane, which has been reduced to its freezing point and turns into liquid,” said Brad Williams, president of Spitfire Energy Advisors in Houston. “And the reason you’re doing that is the volume goes down 600 times.”

According to a (very) rough estimate from Marketplace, one LNG carrier can transport enough gas for nearly 50,000 American homes for a year.

“There are a limited number of LNG carriers in the world,” said Anna Mikulska, a nonresident fellow at the Center for Energy Studies at Rice University’s Baker Institute for Public Policy. “So they are generally in short supply. And they will be much appreciated, of course.

About 700 LNG carriers are available for transport worldwide, and it takes about 2.5 years to build a new one.

This is therefore the first bottleneck, but not the last.

“The main supply bottleneck is actually infrastructure,” said Matteo Ilardo, European geopolitical analyst at consultancy RANE. “Not necessarily the shipment from the producer to the consumer, but rather the infrastructure allowing the exporters to liquefy the gas and ship it. And then the buyers’ import infrastructure.

In other words, there has to be infrastructure to cool the gas to get it to a ship, and – at the other end – you need infrastructure to turn that liquid into gaseous form.

There are only a limited number of these facilities in operation today. And according to Williams, building a new one would likely cost energy companies a bit more than they anticipated a few years ago.

“They realize that the quote they got to build their facility three or even two years ago, as they discount those engineering contracts, those prices have gone up 25%, 30%, 35% , depending on the installation,” he said.

Yet even if they can afford it, building these things takes time.

“Let’s say it takes six months to get the financing and 30 months to build the facility. You know, that’s three full years before you actually get LNG,” Williams said. “And it depends on the alignment and the ability of the vessels to deliver that LNG.”

Once they’ve built them, investors expect the facility to bring in money for decades.

Some European countries are trying a cheaper solution for now. “The installation of floating LNG terminals is a short, semi-short term solution to increase import capacity,” Ilardo said.

Germany should bring some online by the end of this year, as well as the Netherlands and Italy. These will help meet strong European demand for LNG now that Russia is no longer sending gas, Illardo added. And this short-term gas infrastructure has another interesting quality.

“They can be downgraded. There is no problem investing in permanent structures that will stay there,” he said. “There is limited interest in it.”

The interest is limited because the countries of Europe want to end fossil fuels before the end of the life of an onshore terminal.

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