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HomeLNGBiden's LNG pause impact set to flip Europe's energy security?

Biden’s LNG pause impact set to flip Europe’s energy security?

On 26 January, US President Joe Biden announced a temporary pause on pending decisions on exports of Liquefied Natural Gas (LNG) to non-Free Trade Agreement countries (such as the European Union), until a review is made by the Department of Energy (DOE). In fact, according to the Biden-Harris Administration, the current economic and environmental analyses used by DOE to underpin its LNG export authorisations are roughly five years old and no longer adequately account for considerations like potential energy cost increases for American consumers or the latest assessment of the impact of greenhouse gas (GHG) emissions.

The decision comes as a culmination of a very rich climate-friendly agenda led by President Biden in the past years and is especially important this year ahead of the presidential elections which will take place in November. The White House has indeed reminded of all the accomplishments made during the presidential term, like the signing of the Inflation Reduction Act (IRA), the largest climate investment in history; a government strategy designed to tackle methane emissions; the protection of 26 million acres of lands and waters; and the cancellation of oil and gas leases in the Arctic National Wildlife Refuge, among others.

The climate side: does stopping LNG export really help cut emissions?

The decision was also welcomed by several Congressmen, climate activists and environmentalist groups from around the world, including from Europe.

“Fossil fuels and LNG continue to contribute to massive problems across the planet […]. The solution is to build out cheaper clean energy, like wind and solar and to stop subsidising fossil fuels and LNG,” commented Svitlana Romanko, Director of the Ukrainian organisation Razom We Stand. “[…] President Biden’s efforts to stop addiction to fossil fuels and to support clean energy are well recognised and are a shining model others must follow.”

However, how much this resolution will really impact global GHG emissions? The Washington Post summarised that the effect on overall emissions would be “likely marginal”, arguing that by curtailing LNG exports, the US “would just drive customers into the arms of competitors such as Australia, Qatar, Algeria and, yes, Russia. Quite possibly, some potential customers would choose to meet their needs with coal instead.”

And, according to the American Gas Association (based on data from the Center for Strategic and International Studies), US LNG has 50 per cent lower supply emissions than Russian natural gas.

Especially regarding methane emissions, Eurogas, a Brussels-based association of 77 companies and entities operating in the gas industry, said that the European gas industry is already one of the best performers in this regard since we will have one of the most stringent methane emission regulations in the world in place this year (while the US administration is also working to address the issue).

“Prohibiting US LNG exports will simply lead to burning more coal in Europe – with all the negative consequences that has for the climate and environment,” read a press statement published on 17 January.

The risk of increasing and prolonging the global supply imbalance

Nowadays, climate issues are considered to go hand in hand with energy security. Since the US is one of the leading exporters of LNG worldwide with 14 billion cubic feet per day (bcf/d) in current operating capacity and 48 bcf/d in total authorisations approved by DOE to date, the White House has already reassured that the “announcement will not impact our ability to continue supplying LNG to our allies in the near-term.”

However, despite not having too many concerns in the short term, the focus should be put on the long term and on the ambitious goals and plans undertaken by the European Union, which aims to be independent of Russian gas by 2027 and to be carbon-neutral by 2050.

Eurogas reminded that Russian gas provided about 155 billion cubic metres (bcm) or 40 per cent of total EU gas supply in 2021 which has been cut to less than 50 bcm in 2023. At the same time, the EU has increased its imports of US LNG from slightly more than 20 bcm in 2021 to around 50 bcm in 2022 and 60 bcm in 2023.

US remains EU’s leading LNG supplier while Russian energy imports continue to drop, EU Commission says

“This LNG has been a relief for Europe and contributed to the stabilisation of gas and electricity prices in Europe for consumers, after a long period of record high prices caused by the Russian supply drop,” read Eurogas’ statement. “This LNG does not fully replace the gas we had in the past from Russia, we still have a supply gap – and as such we need additional LNG imports from the US.”

According to the association, if additional US LNG export capacities would not materialise it would risk increasing and prolonging the global supply imbalance which would inevitably prolong the period of price volatility in Europe and could lead to price increases with the consequent implications that would have for economic turmoil and social impact.

Addressing the fear that LNG is causing issues to the American economy, Eurogas underlined that US LNG also offers a way to create jobs and develop economic activity in the US and economic analyses conclude that there is almost no link between the level of US LNG exports and domestic US gas prices.

What happens to already-signed deals in the region

An administration official, quoted by Reuters, said that only four projects with export approvals pending at the DOE would be affected by the pause, without naming them. The projects could include ones by Sempra Infrastructure, Commonwealth LNG and Energy Transfer, which, in the past year, have signed different agreements with regional energy companies.

For example, in January 2023, Polish Group ORLEN signed a 20-year contract with Sempra Infrastructure for the supply of one million metric tonnes of LNG per year from the Phase 1 liquefaction terminal currently under development in Jefferson County, Texas.

And, speaking of Commonwealth LNG, earlier in September, the company entered into a Heads of Agreement (HOA) with MET Group, an integrated European energy company headquartered in Switzerland, for the sale and purchase of 1 million tonnes per annum (mtpa) of LNG for 20 years from the Commonwealth LNG facility currently under construction in Cameron, Louisiana. Indeed, after the signing of the agreement, MET Group Chairman and CEO Benjamin Lakatos pointed out that “LNG supply into Europe is a significant contributor to gas supply diversification and an important contributor to European energy security.”

“The Biden administration’s decision to pause the construction of additional LNG projects in the US might affect MET Group’s future plans to bring additional LNG to Europe,” MET Group tells CEENERGYNEWS, at the same time reassuring that “it has no consequences for contracts already in place with existing LNG projects.”

“Our distribution network remains intact and all customers can expect security of supply” the company says.

As a matter of fact, LNG is becoming an important part of MET Group’s strategy. In 2022 alone, MET has imported more than 30 terawatt-hours (TWh) of LNG cargoes to countries in Central and Southeastern like Croatia and Greece.

What might spark some concerns is the long-term outlook, especially considering that there are only a few alternatives available.

“If the US gas is not there we will have to seek it from elsewhere – but again the question would be where, given so much Qatar gas is earmarked for China/Asia,” James Watson, Secretary General of Eurogas tells CEENRGYNEWS.

“I think that while there is no immediate danger from the decision to our supply, there could be some difficulties further down the line – unless the review is quickly resolved and some new facilities are permitted,” he continues, recalling that we are currently still using around 50 bcm of Russian gas, which we are supposed to be bringing to zero by 2027 according to the European Commission.

“Some US commentators have pointed out that as much as 30 bcm could still come online in the US in the next couple of years, but this is to be seen,” Mr Watson concludes. “In any case, if we truly want to break from Russian gas by the end of the decade we will need more US gas to do it, than we take today. By slowing down a handful of projects today, we could be causing a serious bottleneck in the next few years with all the implications that has for price stability, competitiveness and economic output.”

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