INDUSTRY
Biden Makes a Deal For U.S. LNG to Europe That He Has Little Power to Fulfill
U
nless you’ve already done the smart thing and retired to the wilderness of your choice, you’ve probably heard the news that the European Union struck a deal with the United States to considerably boost its intake of American LNG. Considerably in this case means an additional 15 billion cubic meters this year, to grow to 50 billion cubic meters annually by 2030. Just for context, Gazprom’s exports to Germany last year hit a record high of 59 billion cubic meters. The EU has committed to securing the demand for these billions of cubic meters of American LNG. The stipulation might seem surprising given the EU’s recent history of doing everything in its power to discourage fossil fuel consumption but it reflects a reality in which try as hard as Brussels might, business and households need readily available energy. It is in the “readily available” department that the deal with Washington raises some questions. As David Blackmon put it in a recent post, the deal surprised the U.S. LNG industry because LNG producers were, apparently, never consulted on it. In other words, President Biden made a promise without checking with those in charge of its potential fulfillment. The questions David posed included: “Does he plan to order his regulators to streamline permitting processes? Does he plan to somehow order banks and ESG investor groups to stop denying capital to
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companies in the industry, capital needed to fund their $10 billion LNG export facilities?” Perhaps the president does indeed plan to make it easier for LNG producers to get the necessary permits. This is, after all, within his power. As for the second question, the answer would be trickier. Just because Europe is short on gas and about to become shorter once Russia shuts off the tap unless it is paid in rubles, doesn’t mean that the environmentalist lobby has taken a nap. On the contrary, the reaction to the U.S/EU deal has been swift. “There is no way to ramp up U.S. LNG (Liquified Natural Gas) exports and deliver on the imperative climate commitments that the U.S. and the EU have pledged,” said the president of Earthjustice, Abigail Dillen, following the news. “It will take years and cost billions to build out new LNG infrastructure that will lock in expensive fossil dependence and dangerous pollution for decades
to come. Investing in new LNG is not a near-term fix for getting off Russian gas in Europe. It is a diversion of time and resources away from the urgent project of scaling clean energy in the last years we have left to triage in a climate emergency.” I took the liberty of italicising the beginning of the second quote because it is telling of the state in which the EU and the U.S. are making decisions likely to affect the long-term energy security of, in this case, Europe. It is also telling of how important it is to take time to consider the implications of a certain decision before you go ahead and make it. The United States has abundant natural gas resources. Based on these resources alone, it could probably supply Europe with gas for decades to come. Sadly, it’s not only about resources. As Earthjustice’s president noted in the above quote, infrastructure is also necessary and it does not come cheap. Neither does it come quickly.
The EU has committed to securing the demand for these billions of cubic meters of American LNG
So, on the supply side, we have U.S. LNG producers caught by surprise — no doubt pleasant — by the White House’s decision to boost trans-Atlantic demand for their product. Specific deals are yet to be inked, by the way, but we have something of a framework agreement. What we don’t have is enough export capacity, yet. And it will take years to build it. Now, there’s two ways U.S. LNG producers could go about it. They could either reduce shipments to their Asian clients to satisfy urgent European demand, giving up market share in the biggest LNG growth market, or they could supply limited amounts of LNG to Europe until such time as infrastructure allows them to supply more. It looks like an easy decision to make and is very similar to the decision that Middle Eastern oil producers have made with regard to their stance on Europe’s oil supply. As Reuters’ John Kemp explained it in a recent column, “Breaking long-term contracts and giving up Asia’s lucrative growth markets to supply refiners in declining Europe, possibly only for a few months or years, would make little strategic sense [for Middle Eastern oil producers].” Europe’s plans for gas are the same as its plans for oil: it wants them out of the EU’s life as soon as possible. Why, then, would U.S. producers invest in new infrastructure just for European customers if ten years from now Brussels slaps some new sort of emission standard that makes
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By: Irina Slav
