EU clinches US LNG deal in bid to curb reliance on Russian gas

Deal comes after invasion of Ukraine pushed already-steep energy prices to record highs.

The EU and US are set to unveil a deal on Friday that would reduce the bloc's dependence on Russian liquefied natural gas [File: Vladimir Soldatkin/Reuters]

The European Union and United States are set to unveil a deal on Friday to supply Europe with more US liquefied natural gas (LNG), sources told the Reuters news agency, as the European bloc seeks to quickly curb its reliance on Russian fossil fuels.

The invasion of Ukraine by Russia, Europe’s top gas supplier, pushed already-high energy prices to records and has prompted the EU to pledge to cut Russian gas use by two thirds this year by hiking imports from other countries and quickly expanding renewable energy.

President Joe Biden, who attended the EU leaders summit in Brussels on Thursday, promised the US would deliver at least 15 billion cubic metres (bcm) more LNG to Europe this year than planned before, sources familiar with the matter said.

One of the sources added the deal would also include higher US LNG exports to the EU in 2023.

But since US LNG plants are already producing at full capacity, analysts said most of the additional gas going to Europe would have to come from exports that would have gone to other parts of the world.

“We expect near-term measures to support European LNG imports to rely on the reallocation of existing supply,” analysts at Goldman Sachs said in a report, noting “such a relocation to Europe is already happening” because European gas prices have in recent months mostly been the highest in the world.

Jason Feer, global head of business intelligence at Poten & Partners, an energy and shipping consultancy, said there is little new LNG export capacity expected to enter service in the US this year.

“But almost all of it in the US already belongs to somebody. It is under contract,” Feer said, noting “If Europe wants more LNG, they are going to have to pay for it.”

Russia is the EU’s top gas supplier, sending a total 155 bcm of gas to the EU in 2021. Most of that came through pipelines, and 15 bcm was LNG.

US LNG exports to the EU topped 22 bcm last year. US exporters have shipped record volumes of LNG to Europe for three consecutive months, as prices there have jumped to more than 10 times higher than a year ago, with buyers in Europe and Asia competing for tight supply.

Moscow on Wednesday said “unfriendly” countries, including EU member states, must start paying in roubles for Russian oil and gas. This heightened concerns of potential disruptions to Europe’s gas supply.

On Thursday, some EU leaders said the demand was at odds with supply contracts.

“There are fixed contracts everywhere, with the currency in which the deliveries are to be paid being part of these contracts,” German Chancellor Olaf Scholz said. “In most cases it says euros or dollars, this is the basis we are working on.”

“Nobody will pay in roubles,” Slovenian Prime Minister Janez Jansa said.

EU leaders are due to agree on Friday, the second day of their summit, to “work together on the joint purchase of gas, LNG and hydrogen” ahead of next winter, and coordinate filling gas storage, according to their draft decision seen by Reuters.

Those moves are aimed at building up a supply buffer of non-Russian gas. The EU’s executive European Commission would lead negotiations pooling demand and seeking gas, following a model the bloc used to buy COVID-19 vaccines.

Countries divided

Countries remain divided, however, on whether to sanction Russian oil and gas directly, a move already taken by the US. An EU embargo would require unanimous approval from all 27 member states.

Latvia and Poland are among those seeking to halt the hundreds of millions of euros per day Europe pays Russia for fossil fuels.

“Energy sanctions are a way to stop money flowing into [Russian President Vladimir] Putin’s war coffers,” Latvian Prime Minister Arturs Karins said. “The most logical place to move forward is in oil and coal.”

Germany, which receives 18 percent of Russia’s gas exports, and Hungary are among those opposed, citing the economic damage an oil embargo would unleash.

Spain, Belgium, Italy, Greece and Portugal proposed energy price caps and decoupling the price of electricity and gas, to rein in consumer bills.

Other countries warn capping wholesale prices would cause problems and undermine efforts to shift to green energy. Any EU-wide decisions are likely to be delayed until the release of a report due this month from energy regulators on EU electricity market reforms.

EU countries are primarily responsible for their own energy policies. Governments have already poured billions into national tax cuts and subsidies to curb soaring energy bills.

Source: Reuters