United States and Europe strike LNG deal

Liquefied natural gas (LNG) tanker in the ocean (woodside europe)
Image: Shutterstock

The United States will work to supply 15 billion cubic metres of liquefied natural gas (LNG) to the European Union this year to help it wean off Russian energy supplies, Reuters reported.

The EU is aiming to cut its dependency on Russian gas by two-thirds this year and end all Russian fossil fuel imports by 2027 due to Russia’s invasion of Ukraine. Russia supplies around 40 per cent of Europe’s gas needs.

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Concerns over security of supply were reinforced this week after Russia ordered the switch of gas contract payments to roubles, raising the risk of a supply squeeze and even higher prices. 

Russia warned the West on Friday that billing in roubles for billions of dollars of LNG exports to Europe could be just days away and ordered Gazprom to work out how the payments can be made within four days. 

Senior US administration officials did not specify what amount or percentage of the extra LNG supply would come from the United States.

US LNG plants are producing at full capacity and analysts say most of any additional U.S. gas sent to Europe would have to come from exports that would have gone elsewhere.

“It normally takes two to three years to build a new production facility, so this deal may be more about the re-direction of existing supplies than new capacity,” said Alex Froley, gas and LNG analyst at ICIS.

LNG under contract cannot be easily redirected. Already high European gas prices would have to rise further to attract those cargoes to the 27-nation bloc, analysts said.

Even if the 15bcm is achievable, “it still falls well short of replacing Russian gas imports, which amounted to around 155bcm in 2021,” analysts at ING Bank said.

US President Joe Biden and European Commission President Ursula von der Leyen also announced a plan to form a task force to cut Europe’s reliance on Russian fossil fuels.

The Commission will work with EU countries to ensure they are able to receive about 50bcm of additional US LNG until at least 2030. US LNG exports to the EU last year were about 22bcm.

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The EU has already stepped up efforts to secure more LNG after talks with supplier countries, resulting in record deliveries of 10bcm of LNG in more than 120 vessels in January.

Meanwhile Germany, the EU’s biggest importer of Russian gas, said it has made “significant progress” towards reducing its exposure to imports of Russian gas, oil and coal.

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