In a bid to reduce Europe’s dependence on Russian energy, the United States will “strive” to supply the European Union with at least an additional 15 billion cubic metres (bcm) of liquefied natural gas (LNG) by 2022, including through collaboration with international partners, and thereafter about 50 bcm per year until at least 2030, the European Commission and the White House announced in a joint statement on Friday 25 March.
This represents a significant increase over American LNG deliveries to the EU of 22 bcm in 2021.
These additional volumes should contribute to the Commission's goal of reducing the EU’s dependence on Russian fossil fuels by two-thirds by the end of this year, and completely by 2027.
“We are right on track now to diversify away from Russian gas and towards our friends and partners, reliable and trustworthy suppliers. We need to secure our supplies not only for the coming winter, but also for the years to come”, said Commission President Ursula von der Leyen.
By 2021, Russian LNG exports to Europe had reached 16 bcm. As for total Russian gas exports to Europe, they currently stand at 157 bcm, according to the Commission.
“With this volume of 50 billion cubic metres per year, we are already replacing one third of the Russian gas going to Europe today”, the Commission President stressed.
Ensuring predictability for businesses
Asked about the ability of the US to supply an additional 15 bcm of LNG to the EU already this year (and thus around 37 bcm in total), a senior Commission official said that “the political commitment of the two Presidents is very clear: this is a minimum level”.
The aim is to establish “a policy framework” and provide “incentives” for companies in the long term, even if LNG deliveries remain “private operations”, said another senior official of the institution.
He added: “We are working with the Member States to ensure that there is stable demand - that’s what the US needs - and the US is making sure that there is stable supply”.
Creation of a joint working group
To this end, the US and the Commission will set up a joint working group, chaired by a representative of the White House and a representative of the Commission President, to define the parameters of EU-US energy cooperation and ensure its implementation.
What additional cost to the EU?
Regarding the costs for the Union, the joint declaration states that “the price formula of LNG supplies to the EU should reflect long-term market fundamentals, and stability of the cooperation of the demand and supply side”.
Both parties agreed that the price formula should take into account the Henry Hub Natural Gas Spot Price - the reference point for calculating natural gas futures - and other stabilising factors.
According to a senior Commission official, this is a guarantee of stability, as the Henry Hub index is lower than the current Dutch TTF (the benchmark in Europe).
The fact that the EU is looking to establish long-term contracts is “an indication that we are looking for a lower price than the spot market price”, he added.
According to the Commission, it is therefore difficult to predict the price of additional US LNG deliveries at this time, as this will depend heavily on the length of the contracts, an issue which the Commission now needs to clarify with the Member States.
This is also the opinion of Raphael Hanoteaux, senior policy advisor on gas policy for the think tank E3G. However, he believes that LNG from the US will clearly be more expensive, “as most new contracts would have to be negotiated now, at a time when gas prices are extremely high. US suppliers have no incentive to negotiate a low price”.
“Europe has relied on cheap Russian gas and replacing much of this gas with US LNG will mean higher costs. But of course right now natural gas prices are extremely high too”, said Jan Rosenow, director of the Regulatory Assistance Project think tank, noting that spot natural gas in Europe has historically traded at lower prices than spot LNG prices in Asia.
Infrastructure
He further stressed that importing an additional 15 bcm of LNG from the US this year would not require the construction of new LNG terminals in Europe, as existing terminals “are currently underutilised with significant potential to increase LNG imports in the short term”.
In his view, total terminal capacity in France, Belgium, the Netherlands, Poland and Italy should be more than sufficient to accommodate the additional US supply this year.
“It might be a bit more difficult to reach 50 bcm per year, although there is a ‘theoretical’ capacity of 71.2 bcm of additional LNG imports to EU countries, due to the uneven geographical distribution of terminals in Europe”, Hanoteaux said.
In a paper dated 8 March (https://aeur.eu/f/yu ), the Commission pointed out that the EU has the potential to import an additional 50 bcm of LNG per year.
See the joint statement: https://aeur.eu/f/yv (Original version in French by Damien Genicot)