Home Commodities ArcelorMittal eyes US LNG for stable gas supplies

ArcelorMittal eyes US LNG for stable gas supplies

by SuperiorInvest

Unlock Editor’s Digest for free

ArcelorMittal is hunting for US liquefied natural gas supplies in what would be its first LNG deal for its European steel operations.

Since the search is in its infancy, no decision has been made on the duration or structure of a contract to supply LNG, but industrial peers of the world’s second-largest steelmaker have signed deals for about 20 years.

The decision to seek a deal follows disruption to the European gas market due to the war in Ukraine while concerns persist over high, unstable prices and pipeline supplies, five people familiar with the matter said.

LNG has become more attractive as an alternative energy source, particularly in the United States, after Russia cut gas pipeline supplies following its invasion of Ukraine.

Industries, especially in Germany, have spent decades building an industrial sector dependent on the cheap Russian gas pipeline, but were hit last year by Moscow’s cutbacks and explosions that demolished parts of the Nord Stream gas pipeline.

A deal would also follow ArcelorMittal’s joint venture with Nippon Steel in India when it signed a five-year LNG deal with France’s TotalEnergies in 2021.

It would be the third European industrial company to sign an LNG agreement with the United States after the agreements of petrochemical groups Ineos and BASF with producers Sempra Infrastructure and Cheniere Energy, respectively.

Ineos’ deal with Sempra runs for 20 years starting in 2027, while BASF’s deal runs from mid-2026 to 2043.

Other US LNG producers include Energy Transfer, NextDecade and Commonwealth LNG.

ArcelorMittal, based in Luxembourg, requires large amounts of energy for its furnaces. Its steelmaking processes also require natural gas.

Gas is increasingly seen as a better choice as an energy source because it emits less CO₂ than coal, which would help the company decarbonize in the long term, people familiar with the matter said.

The group aims to reduce its CO₂ emissions in relation to production by 25 percent globally and in its European operations by 35 percent by 2030.

It also wants to use more gas as it transitions from traditional blast furnaces to less carbon-intensive electric arc furnaces.

Ineos, whose deal with Sempra was signed in December last year, is also looking to provide its LNG to other groups in need of alternative gas supplies.

With fluctuating gas demand, Ineos aims to sell any surplus as part of a strategy to make the most of its LNG shipments.

David Bucknall, chief executive of Ineos Energy, the petrochemical group’s energy arm, said European industries have been crippled by higher energy costs compared to those in the United States.

“American companies have a clear advantage in that energy costs are low,” he said. “A disadvantage is beginning to be seen in Europe. . . to really access that [cheaper US energy] “You have to go to the source.”

He added that companies with global size and operations would be needed to consider delving into LNG.

“I think you have to be quite big and ambitious. . . If you are not global, if you do not have the [gas] demand around the world and options around the world, it is difficult to get into LNG.”

While prices have retreated this year, they remain high by historical standards and volatility has remained.

Although Europe can source LNG from other parts of the world such as Qatar, companies such as Ineos, BASF and ArcelorMittal see the United States as a better alternative supplier, as contracts there tend to be more flexible.

They allow companies options to resell to other parties or divert cargoes to their operations in other parts of the world where the gas is needed.

“We are likely to see more deals” between European industrial companies and U.S. LNG producers, said Mauro Chavez, head of European gas and LNG markets at consulting firm Wood Mackenzie.

ArcelorMittal declined to comment.

Source Link

Related Posts

%d bloggers like this: