Viewpoint: Hunting for Ways to Open the Taps

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German Chancellor Olaf Scholz went to Kyiv and Moscow at the start of the week with the goal of defusing tensions amid Western warnings of an "imminent" Russian invasion of Ukraine. Russia denies the plans, but more than a dozen countries, including the UK and the US, have urged their citizens to leave Ukraine.

Russia said on Feb. 15 it was pulling back some troops to base, indicating some deescalation. Still, policymakers in Brussels continue to look to shield EU consumers from any disruption to Russian gas flows caused by military action. Russia supplies Europe with about 40% of its gas imports.

No public agreements have emerged from Brussels’ and Washington’s overtures to Qatar to supply more gas should Russian supply be interrupted. But reports that the European Commission has shelved an anti-trust investigation into destination restriction clauses in Qaar's long-term contracts with Europe could indicate a deal is close. The commission has declined to comment.

The investigation has rankled Doha since it opened in 2018. If the reports are true, they could be a sign that Europe is prepared to make concessions to suppliers in exchange for much-needed emergency volumes. Next up on Qatar’s list of demands is a guarantee that any gas diverted to Europe would be used in the region and not resold — a guarantee that would breach EU competition rules. It remains to be seen whether EU policymakers are prepared to cross this red line.

American officials also talk up the prospect of the US playing a significant replacement role. Destination-flexible US cargoes have already been heading to Europe en masse, taking advantage of high European prices. Four months ago, about 47% of US LNG went to Asia and 33% to Europe. So far this month, it has been about 75% to Europe and just over 11% to Asia.

"We're fortunate that we have that flexibility," says Charlie Riedl, director of the Washington-based Center for LNG lobby group. "The reason that we wanted to have the flexibility in the first place was tied to energy security and now we're seeing that play out in real time." Riedl says the Ukraine crisis, and other market shocks such as 2020's Covid-related cargo cancellations "raise the level of attractiveness of US LNG.”

But there are limits. Capacity is now maxed out at most US plants. In any case, the Biden administration can't direct cargoes to politically preferred destinations without stepping on a minefield of contractual agreements.

Longer term, Congress could consider several measures demanded by the industry, such as changing the Energy Department process for granting LNG export licenses so that approval becomes automatic for both free trade agreement and non-free trade agreement countries.

After a lengthy period in which developers held off on sanctioning new liquefaction capacity, that could galvanize project action, says Fred Hutchison, president and CEO of LNG Allies, which lobbies for US exports. "Even if the actual supply response wouldn’t be for three to four years, it would facilitate supplies,” he said. It could allow US projects to reconfigure more easily, accelerate construction and pave the way for brownfield expansions.

LNG Supply, LNG Trade, LNG Prices
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