The Big Picture

Europe's Push for Gas, Security

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  • A new US-EU task force on energy security aims to reduce Europe’s dependency on Russian gas by increasing flows of US and other LNG to Europe.
  • The effort promises to reorient European gas trade and infrastructure — even if specific targets are missed.
  • Other lasting changes could include a bigger government role in liberalized energy sectors, an accelerated energy transition, and closer linkages between Europe and North Africa and the East Med.

Cutting Europe’s reliance on Russian gas imports has become an EU priority. The goal set in a US-EU joint statement last week is for Washington, with international partners, to supply an additional 15 billion cubic meters of LNG to Europe this year. Longer term, the European Commission has pledged to work with member states “toward ensuring stable demand for additional US LNG until at least 2030 of approximately 50 Bcm/annum.”

The initiative forms part of a huge push to reshape the EU’s energy landscape — with the EU itself having set out a target to replace two-thirds of its Russian gas supply by end-2022, or 100 Bcm, through more LNG imports, energy efficiency and other measures.

Climate goals have not been forgotten, with clean energy seen as the “true path to energy security,” as one senior US official put it. Both sides will make efforts to lower the carbon footprint of new LNG-related infrastructure, with a view to future hydrogen potential. And importantly, new infrastructure and LNG flows are not about adding fossil fuel supplies to Europe’s energy mix — but about replacing Russian gas.

The sheer scale of the ambition means not all targets are likely to be hit, but the sense of urgency will create its own momentum.

Bigger Market Role, With Limits

The crisis has governments in Europe and the US taking a more publicly active interest in securing energy supplies than in recent years — even if such intervention is hardly new and their toolbox is limited.

For the US, this isn’t the first time its fossil fuel bounty is supporting a key foreign policy goal. In 2012-15, as US shale output exploded, Washington reassured importers of Iranian oil that the market would not be left short of crude as it tightened sanctions. Now, the push to wean Europe off its addiction to cheap Russian pipeline gas is backed by the US’ new status as the world’s top LNG producer.

The former Donald Trump administration was actively involved in marketing US LNG abroad — dubbed “freedom gas” for Europe — but linked sales to broader trade talks that largely went nowhere. The Joe Biden administration, fixed on climate goals, was initially reluctant to offer full-throated support for US LNG overseas.

That has clearly changed: Washington for months has been trying to help the EU secure alternatives to Russian gas. US LNG supplies, given their destination-free clauses, have provided the bulk of an extra 11.5 million tons (16 Bcm) heading to Europe since December, with more capacity expected on stream this year.

The US Department of Energy recently issued two approvals that potentially allow more supplies to be shipped to Europe, while the Federal Energy Regulatory Commission signaled a possible shift in its approach to gas pipeline and LNG export approvals. Still, it’s private companies, not Washington, that will make final investment decisions on any new capacity.

The EU is likewise showing a heavier hand in its pursuit of energy security policies — and will now support long-term gas contracting mechanisms, enact higher storage requirements and advance joint gas procurement policies.

EU Tilt to Long-Term LNG

Politics is clearly driving Europe’s new energy strategy. Poland serves as a model. Sentiment there supported paying a premium for LNG toward a target of ending Russian pipeline gas imports by end-2022, and a first Qatari cargo was delivered in late 2015. Now EU heavyweight Germany is in a similar position: Witness Berlin's recent outreach to Qatar, and its plans to bring on line three LNG import terminals totaling 30 Bcm/yr of capacity, one to be half-funded by state bank KfW.

Before Russia’s invasion of Ukraine, new large onshore LNG import terminals in Europe were simply not in the cards, on cost grounds. Cost plus Europe’s lack of enthusiasm for gas beyond 2030, may yet conspire to keep most LNG terminal newbuilds out of reach, with the time frame too short to guarantee investors a return. Intentions are that infrastructure would be hydrogen-ready, but uncertainties about the hydrogen market abound.

The near-term focus will likely be on pushing existing terminals harder — barring in Spain, which lacks interconnector capacity. But terminals in the UK, connected to Belgium and the Netherlands by pipeline, are currently running at 60% capacity. The Netherlands will expand capacity at its Gate terminal from 2024.

Cheaper and more flexible floating LNG terminals may be preferred: Italy, Germany and the Netherlands, among others, are now eyeing floating storage and regasification units (FSRUs). But only 10-15 FSRUs may be available globally, a Europe-based LNG shipbroker told Energy Intelligence, and these are quickly being snapped up.

The EU’s search for near-term non-Russian gas could also refocus Brussels’ attention on North Africa and the East Mediterranean’s potential. Algeria has said it can pipe an additional 2 Bcm/yr of gas to Europe. Egypt’s LNG terminals could be used to export Israeli or Cypriot gas.

Longer term, it may be the region’s renewables and hydrogen potential that offers the biggest win, for both sides. Morocco, Algeria and Egypt have pilot green hydrogen projects. Morocco has stolen a lead on solar capacity, while Algeria is launching a 1 gigawatt solar tender. Build that out, add electricity interconnectors to Europe, and the scene could be set for a revival of the failed Desertec plan over a decade ago.

Security From Transition

Europe’s Russian gas displacement plan envisages a substantial role for energy efficiency and renewables — these account for roughly 40% of the target this year, and more through 2030. The International Energy Agency (IEA) estimates that turning down thermostats by 1°C could save Europe 10 Bcm of gas annually. With current average heating temperature in the EU above 22°C, according to the IEA, a strong PR campaign to lower thermostats to 19°C-20°C could save even more.

Next could be government subsidies or tax breaks to boost home insulation and rooftop solar, and promote heat pumps. Utility-scale renewables cannot be accelerated too quickly, but would play a large role in the 2030 time frame. Germany is already discussing how to push this sector harder, including by easing permitting. Higher gas prices also improve the economics of green hydrogen in Europe, and give a boost to biomethane. Europe’s interest in LNG is largely time-limited to the 2020s. Beyond that, its focus is still on low carbon, now at an accelerated pace.

Policy and Regulation, Low-Carbon Policy, Security Risk , LNG Trade, LNG Supply, Floating LNG, LNG Contracts
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