Could American gas save Europe? Maybe not. Report Ft
American gas will not be able to free Europe from dependence on Russia, for infrastructural and market reasons. The in-depth analysis of the Financial Times
The US and the EU announced a groundbreaking deal last week to rid Europe of Russian natural gas. The "innovative" pact, Joe Biden said, will deprive Vladimir Putin of the ability to "coerce and manipulate" the continent's energy consumers. The Financial Times writes.
The "joint action plan" has three steps. First, the US will help the EU secure short-term liquefied natural gas supplies to begin replacing Russian gas. Second, Europe will work "towards the goal of securing" a larger market for US gas by 2030. Third, the US would help Europe accelerate its clean energy transition by reducing end his demand for gas.
How much more gas has the United States offered?
The US said it would strive to add 15 billion cubic meters of liquefied natural gas to the EU this year, and more in the years to come. He did not specify the origins of the gas, noting that he would "work with international partners".
By comparison, Russia currently exports 155 billion cubic meters of gas per year to the EU.
The baseline for the promised 15 billion is unclear. But the United States shipped around 22 billion cubic meters of gas to Europe in 2021 and has already sent 10 billion in the first quarter of this year, according to Refinitiv. All of this is in the form of LNG, a gas that has been condensed so that it can be transported on a ship.
Some non-US supplies will come from a recently opened export project in Louisiana, the Calcasieu Pass plant. But these volumes were already expected on the market, and plants elsewhere along the coast are operating at maximum capacity.
So, for now, any extra LNG will have to be pushed to Europe through higher prices, diverting ships originally headed elsewhere. This could prove painful for consumers.
"Any incremental cargoes of LNG sent from the US to Europe are more likely to be a redirect of existing US LNG cargoes – and therefore will do little in the way of material 'price relief'," Bank of America said.
How can the US get more LNG supplies to Europe?
Most US LNG contracts are not necessarily limited to a particular destination. So if prices remain high enough in Europe, operators can continue to reroute cargoes there.
And if the EU manages to replace the roughly 15 billion cubic meters of LNG it currently imports from Russia – a much smaller amount than it imports through pipelines – those Russian cargoes by sea could in turn flow to other places.
"A big shuffle is about to happen," an industry executive said, referring to this possibility.
This is part of Biden's plan. Jake Sullivan, the president's national security advisor, said the administration will rely on a "cargo diversion strategy".
But the commercial terms still make this plan difficult.
"I think in the short term, it will be quite difficult," said Inosi Nyatta, a partner at the Sullivan & Cromwell law firm. "Maybe they'll have some sort of incentive scheme where they'll encourage sellers to renegotiate."
The US approach to date has been to lean on governments – in large importing countries like Japan or South Korea, but also in Qatar, which sits with the US and Australia in the top tier of exporters. of LNG. Releasing even more cargo "will involve a lot of diplomacy," a senior administration official said.
Does Europe have infrastructure to receive more gas by sea?
Yes, but not in the right place. Eastern Europe and Germany are more dependent on Russian gas. But most of the available LNG regasification infrastructure is in Southern Europe.
Germany has proposed to build new terminals to receive LNG, or to rent regasification vessels that can float on the open sea. Either way, the transition from pipeline dependence to LNG dependence will be costly and time consuming.
Investors in expensive new import terminals – whether they are taxpayers or capital markets – will need assurances that a transition to cleaner energy will not simply make these fossil fuel assets worthless a decade from now.
Does the LNG deal compromise US climate commitments?
The White House's promotion of LNG was welcomed by American fossil fuel producers, who even before the Russian invasion of Ukraine were promoting these exports as a "green initiative" that would allow Asian importers to burn gas. natural instead of coal to produce electricity.
It is also a huge change for the EU, which was becoming increasingly hostile to gas even before the invasion.
"This is a U-turn from previous EU purchasing decisions, as many buyers had stopped trading with US developers for LNG due to ESG (environmental, social and governance) concerns," Sindre said. Knutsson of Rystad Energy, a consulting firm.
Environmentalists have been dismissive. "Allowing the expansion of new and extensive gas export facilities would mean stopping decades of dependence on risky and volatile fossil fuels and wreak havoc on our climate," said Kelly Sheehan of the Sierra Club.
And what about the long run?
Biden and Ursula von der Leyen, president of the European Commission, also discussed a bigger plan for the United States to ship 50 billion cubic meters a year of more LNG to Europe by 2030.
This is doable on paper. According to the Cowen investment bank, the US government has approved a dozen export projects with a total capacity of 206 billion cubic meters per year – roughly double the current US capacity.
But LNG plants cost billions of dollars and take years to build, and no one expects all 12 projects to go ahead. Operators and their lenders usually want contracts with buyers – some lasting 20 years or more – before they start pouring money into projects.
In its statement with the White House, the European Commission said it would work "towards the goal of securing" demand for 50 billion cubic meters of US gas – an apparent concession to the LNG industry's anxieties about future demand. .
At the same time, US officials have been clear that the long-term goal is still to stop using fossil fuels, including LNG.
"The real path to energy security is through clean energy," said a senior administration official. “The first part is to rid Europe of Russian gas. The second part is to ensure that Europe gets rid of gas altogether ”.
(Extract from the press review of eprcomunicazione)
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/energia/gnl-stati-uniti-europa-financial-times/ on Sun, 03 Apr 2022 06:12:16 +0000.