Despite efforts from Europe to wean itself off Russian gas supply, the region’s energy regulator warned on Friday that the bloc is still dependent on Russian LNG to mitigate the risk of an energy shock – news made even more relevant given the United States’ still indefinite ban on LNG exports.
The latest analysis by the energy watchdog – the Agency for the Cooperation of Energy Regulators (ACER) – recommends that “the reduction of Russian LNG imports should be considered in gradual steps” to avoid price spikes. The report highlights the difficulty facing the EU in balancing energy security needs with the desire to hurt Russia’s finances and marks the latest indicator of the high demand for LNG on a global scale. As the Financial Times observed in a report this morning:
“Although the EU has succeeded in replacing Russian pipeline gas with LNG since the Kremlin’s 2022 full-scale invasion of Ukraine, the global gas market is still tight.” (emphasis added)
Commenting on Europe’s continued reliance on Russian LNG, a France-based gas trader told S&P Global:
“If Europe is still importing LNG from Russia, it is because there is a need […] With our other main suppliers, such as Norway, operating at maximum capacity, it will be hard to completely stop the flow of Russian LNG. We are still not completely out of the crisis.”
The ACER report also tracked Europe’s LNG import levels, noting that with 134 bcm of imported LNG in 2023, Europe retained its status as the top LNG importer globally. Given Europe’s strong reliance on imports and the push to replace Russian supply, the United States will be a critical supply partner for Europe. Indeed, the report projected that the United States will lead on LNG export capacity construction globally up to 2030.
However, recent developments from the Biden administration may be putting this critical energy security pathway at risk for Europe. As EID has previously explained, President Biden’s recent decision to temporarily pause approvals for new U.S. LNG export projects to non-FTA countries will have far-reaching consequences for the future of Europe’s energy security. As Kaushal Ramesh, head of gas and LNG analytics at research firm Rystad Energy summarises:
“For them [the U.S.] to embark on a policy update that will slow LNG approvals is a significant development that is bound to induce nervousness in future LNG customers, including diplomatic allies in Europe and Asia.”
As we’ve seen in the wake of Russia’s invasion of Ukraine, price volatility in energy markets ultimately hurts consumers. Energy prices in the European Union reached record levels in 2022, a trend that was mirrored across the western world. But American LNG contributed significantly to stabilising global energy prices. As Didier Holleaux, President of trade association EuroGas, explains:
“This LNG has been a relief for Europe and contributed to the stabilization of gas and electricity prices in Europe for consumers, after a long period of record high prices caused by the Russian supply drop…A lack of additional U.S. gas-export capacity would risk increasing and prolonging the global supply imbalance.” (emphasis added)
Bottom Line: The challenge of replacing Russian LNG imports is weighing heavy on Europe. Against this backdrop and given the bloc’s lack of domestic gas reserves, now is the time for Europe’s allies – critically, the United States – to promote supportive LNG policy, rather than hamper global energy security efforts.
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