How Much Does U.S. LNG Cost in Europe?
July 5, 2019
Europe has emerged as the primary destination for U.S. liquefied natural gas (LNG) exports in the first quarter of 2019 reigniting a familiar question: Can U.S. LNG compete with Russian gas in Europe? In turn, this debate rests on assumptions about the cost to deliver U.S. LNG to Europe, a topic on which the average reader is bound to encounter wildly contradictory stories. What do we know about these numbers and what can we infer from the actual data on U.S. LNG into Europe?
The value chain for U.S. LNG exports is well understood at least in broad terms. Gas comes from the grid at a price that bears some relationship to Henry Hub. That gas is transported to an export facility and then liquefied—a service for which Cheniere Energy first charged a 15 percent markup thus creating a reference number that subsequent analyses use. Estimated liquefaction fees also came from Cheniere’s publicly reported numbers, ranging from $2.25 to $3.50 per million British thermal units (MMBtu), although recent contracts are understood to be around $2/MMBtu. Shipping costs vary by destination and also due to market conditions—short-term charter rates are volatile while long-term rates are not. But overall, there is a narrow range of plausible costs for delivering U.S. LNG to Europe.
But actual data show far more variation. The graph below is a bit messy, which is sort of the point. On the export side, each diamond is a cargo going to a set of European markets. On the import side is an individual country and the price it paid for all the LNG it imported from the United States each month (so each circle might include more than one cargo). The variation along the y-axis shows the range in prices for a single month among cargoes (for exports) or among different countries (for imports).
Why so much variation? In part, this is because our stylized costs are just that—stylized averages. There are also some variations in reporting—whether, for example, to include fixed fees for liquefaction in exported prices. But more fundamentally, there is a sharp difference between costs and prices—and between different prices. Gas prices remain fragmented and (still) somewhat opaque, and the actual data on delivered U.S. LNG to Europe merely reflect that fact. As such, all grand statements on how much Europe is paying for U.S. LNG should be read with caution—and, ideally, supported by actual data.