01. Natural gas trade between Russia and Europe is interrupted

The escalating sanctions imposed by the West against Russia under the conflict between Russia and Ukraine have raised concerns about disruptions in Russian energy supplies. European natural gas prices jumped on Monday, soaring by 37% at one point. It is clear that the "gas-starved" European market is sensitive to Russian gas supplies.

No wonder. According to the data of the past two years, 1/3 of Europe's annual natural gas consumption comes from Russia, with imports of about 170 billion cubic meters (including 150 billion square meters of pipeline gas and 15 billion tons of liquefied natural gas / 11 million tons). It can be said that Russia is definitely the largest supplier of natural gas in Europe. Once the supply is cut off, Europe will have a huge energy gap.

Now, the Russian-European gas trade is on the verge of breaking down. Many people believe that if Europe cannot import natural gas from Russia, the United States, also a big producer of natural gas, is likely to benefit from it. In 2020, the United States exported 137.5 billion cubic meters of natural gas, accounting for 11 percent of the global natural gas trade, second only to Russia in the world. In recent weeks, the United States has increased shipments of liquefied natural gas (LNG) to Europe. Some netizens joked: "the United States has won hemp." "

But is this really the case?

02. Why is it difficult for the United States to become an alternative gas source?

In fact, even if Europe does not import natural gas from Russia, it does not mean that the United States can sell more gas.

Why would you say that?

Cross-border natural gas and LNG industry is a systematic project that integrates "gas source production-transportation channel-consumer market". The construction of each link is a big project, once completed, it is difficult to give up easily, especially the transportation channel.

The transportation of natural gas mainly depends on two ways: one is to lay oil and gas pipelines, and the other is LNG carriers to transport liquefied natural gas.Europe's natural gas imports mainly rely on these two channels.

Oil and gas pipeline systems often take several years to build.At present, the composition and calorific value of natural gas used in France, Germany and parts of the Netherlands are different, and the supporting infrastructure is also different.

Different pipeline systems in European countries cannot communicate with each other and cannot be adjusted. To build a pipeline from the gas source country to Europe, it has to be designed according to the needs of European countries. The pipeline supply system between Russia and Europe was built 20 years ago. It is difficult for other natural gas exporters to become alternative sources of gas in Europe in the short term.

It is even harder for the United States to become an alternative source of gas. The United States and Europe are far away from the Atlantic Ocean, so it is not easy to build a natural gas pipeline. Therefore, from the perspective of pipeline transportation, the natural gas gap caused by Russia cannot be filled by the United States.

And take a look at the transportation of liquefied natural gas.

Because of the great success of the shale revolution, the export volume of LNG liquefied natural gas in the United States has been actively rising in recent years. In 2021, LNG exports from the United States increased by 34 billion cubic meters, the largest increase among exporting countries. Europe has also been the main beneficiary of the US's growing share of the LNG market, with EU LNG purchases from the US accounting for 37 per cent of its exports in January.

However,The contract structure of the global LNG market limits the possibility for the United States to redirect LNG to Europe.The business of liquefied natural gas (LNG) is developed according to a long-term contract with a time limit of 20 ~ 25 years, and the main importers in the world are China, Japan and South Korea. The main market for LNG producers is in Asia, and the remaining share that European buyers can compete for is quite limited.

Moreover, the world's natural gas is in a seller's market, and the increase in demand will further push up the already high price of natural gas. In the context of high global shipping prices, it is also a question whether LNG ships can be found and whether Europe can afford high transport prices.

As a result, the United States is also unable to fill Europe's energy gap with liquefied natural gas in the short term.

In addition, there is also a big gap between the natural gas production of the United States and the energy gap that may occur in Europe. At present, if Russia-EU natural gas trade is interrupted, Europe will face a gap of 170 billion cubic meters. The annual LNG export volume of the United States in 2022 is expected to reach about 117 billion cubic meters. Even if all of it is supplied to Europe, it will not be able to meet the demand.[2]。

In fact, due to the lack of transportation pipelines and the limited production of LNG, the natural gas market in the United States was almost separated from the international market in the past and had its own price system. Global natural gas prices soared one after another at the end of last year. When the spot price of liquefied natural gas in Asia reached about $200 a barrel, the price of a barrel of natural gas in the United States was only $35.

If the United States increases its exports, the huge demand from Europe will push up the price of natural gas in the United States, which means that Europe will compete with the Americans themselves.

So even if the United States can fill the gap in Russia's gas supply to Europe, it will only be gas producers and exporters who will win, which may not be a good thing for ordinary Americans who are suffering from high inflation.

It is unlikely that Europe will rely on the United States to reduce its dependence on Russian gas. Imports can only be reduced by suppressing demand.

Who is the winner?

Although commodities and energy are deeply affected by the international geopolitical situation, the winners and losers of international energy trade cannot be explained by the simple "if others sell less, I can sell more".

For the United States, a large output of natural gas does not mean that exports are also large, and it is even more difficult to achieve "where you need to move where"; even if the export is large, it does not mean that it will bring great benefits to the common people.

So, from another point of view, if the EU does not buy Gazprom, is it possible that the next new buyer is China? China is short of gas, but in the face of Russian natural gas, it is not that it does not want to buy, mainly can not. The construction of the natural gas pipeline between China and Russia is still in progress, Russia's gas supply to the Chinese market is still in the stage of development, and China will not be able to obtain Russian surplus natural gas in the short term.

All in all, both the Russian people on the gas source side and the European people on the consumer side have to bear the bitter consequences of the cut-off of natural gas supply. The rise in global energy prices will bring this negative effect to the world. In an unstable world, many will pay the price. And the price may be you and me.