Europe needs gas. America has plenty. What is the heist?

FILE – The Reckrod gas storage plant is pictured near Eiterfeld, central Germany, Thursday, July 14, 2022, after the Nord Stream 1 gas pipeline was closed for maintenance. European Union governments agreed Tuesday, July 26, 2022 to ration natural gas this winter to protect against any further supply cuts by Russia as Moscow continues its invasion of Ukraine. (AP Photo/Michael Probst, File)

Vladimir Putin’s brutal invasion of Ukraine and the West’s forceful response served to highlight a huge problem in Europe’s manufacturing: an overreliance on Russia for its natural gas. . The European Union is reducing its consumption to reduce its dependence on Russia and to build up a stock for the winter while trying to obtain longer-term supplies from more reliable partners, but without a doubt, the transition will be painful.

As the world’s largest exporter of natural gas, the United States has vast reserves to offset Russian supplies, and American producers are eager to do so. The catch is that America only has a few gas liquefaction facilities for shipping, most of the existing capacity is already under contract with current customers, and the construction of a new liquefaction plant to export the gas takes three to five years once permits are issued. granted (which takes another two years). Uncle Sam has plenty of gas, but it will take some time before it makes a substantial difference for Europe.

Germany, as the de facto leader and largest economy in the EU, made what turned out to be two serious miscalculations at the turn of the century. First in 2002, Chancellor Gerhard Schroeder announced that the country’s 17 nuclear power plants would be phased out. In 2011, Angela Merkel succumbed to pressure from members of the Green party in her government’s coalition to speed up decommissioning until the end of 2022. Today, only three plants remain operational, all of which are due to be mothballed in December.

The other big gamble taken by Germany and the rest of the EU was deepening economic ties with Russia, including increasing the amount of natural gas purchased from the former Soviet Union. These failed bets have made Europe dangerously dependent on Putin at the most perilous moment of this century. In 2021, the EU bought 40% of its gas from Russia and Germany more than 50%. This has left Western Europe exceptionally vulnerable to Putin’s whims and actually helps fund the invasion and devastation of Ukraine.

Meanwhile, across the pond, America is swimming in gas. It has not always been so. Following the deregulation of electricity generation in the late 1990s, dozens of gas-fired power plants sprung up, which quickly created a critical shortage of gas and caused prices to quintuple. Then came the horizontal drilling and hydraulic fracturing revolution that released massive amounts of previously inaccessible oil and gas. This unexpected bonus quickly propelled the United States from being a net importer in 2017 to being the world’s largest exporter of natural gas by 2021.

But moving large volumes of gas requires an additional complex and expensive process: turning gas into liquid for transport. The process, known as liquefaction, involves a multi-step process of cooling the gas to minus 260 degrees Fahrenheit, at which point it becomes a liquid that can be efficiently loaded onto transport vessels and moved around the world. This refrigerated product is called liquefied natural gas or LNG and is 1/600th the volume of gas at room temperature, making it possible to transport gas over long distances. Visualize a 55 gallon barrel of natural gas pressed into a liquid that would fit in a beer can.

Commercially viable liquefaction or liquefaction was first developed in 1873 by German scientist Karl von Linde, whose name lives on today in the Linde Corporation. The first transport vessel was a converted WWII Liberty Ship renamed the “Methane Pioneer” which carried its first load of LNG to England in 1959. The largest LNG transport vessels today carry approximately 48 times more of gas than the Methane Pioneer, enough energy to heat 50,000 average homes for a year.

The first US facility to export LNG in 2016 was the Cheniere Energy Sabine Pass liquefaction terminal on the Louisiana Gulf Coast. Ironically emblematic of the sea change in US energy assets, the Sabine Pass facility was originally built in 2008 to receive gas imported from overseas.

There are currently eight liquefaction terminals or “trains” in operation, three more are under construction and 12 have cleared regulatory hurdles to begin construction. This means that it will take at least 2024 or 2025 before significant additional export capacity becomes available to supply the European economy.

Most of the current capacity is under contract, but some shipments have been diverted to Europe or resold to European customers to take advantage of higher prices. In addition, the EU is asking its members to reduce their consumption by 15% to increase gas stocks. Some members of Germain’s parliament are urging Chancellor Olaf Sholz to delay closing the remaining 3 nuclear facilities, but political opposition remains strong and the plants supply only 5% of Germany’s electricity.

America’s energy production revolution has been nothing short of astonishing, and in its absence the disastrous economic and geopolitical consequences of America’s continued reliance on foreign sources can only be imagined. It is estimated that there are enough reserves of American gas in the ground to last 100 years at the current rate of consumption and export, so there is more than enough supply to help Europeans turn their backs on Vladimir Poutine. But it will take time.

Christopher A. Hopkins is a Chartered Financial Analyst and co-founder of Apogee Wealth Partners in Chattanooga.

Of text
Photo added / Chris Hopkins

Mary I. Bruner