The European Union continues to place its confidence in natural gas, announcing it will increase its number of LNG import terminals from 27 to 35 by next year.
The recent announcement by Vice-President of the European Commission, Maroš Šefčovič, will significantly increase the EU’s regasification capacity from 178 billion cubic meters a year (bcm/year) to 227 bcm/year – an almost 22 percent increase in capacity.
But what is driving this decision, and what does it mean for U.S. LNG?
More than a year after Russia’s unprovoked invasion of Ukraine, it’s important to look back on where we have been, where we are, and where we are going around LNG.
EU Policy Shift Towards Natural Gas
Since Russia’s unprovoked invasion of Ukraine, EU policy has shifted radically and favorably towards natural gas, seeking to reduce all dependence on Russian energy resources.
Additionally, the announcement to expand the number of LNG terminals follows a July 6, 2022 decision by the European Parliament to label natural gas as climate-friendly, enabling it to qualify as a green investment and reaffirming the EU’s belief that natural gas is a clean, reliable, and resilient energy source.
Both decisions are substantial to guarantee the EU’s energy security and independence from Russian gas, while also advancing the bloc’s energy transition goals. This wake-up call, while long overdue, represents a great opportunity to reposition gas, particularly LNG, as a key part of the energy transition. BUT, this also signals a reordering of the EU’s top partnerships, particularly with the United States, which provides a substantial amount of LNG to the EU.
By The Numbers In The EU
Natural gas plays an important role in the EU and is used primarily for power generation – heating more than 30 percent of households – and industrial processes. Despite this, production in the EU has been steadily declining while its demand and imports have grown. Additionally, countries closer to Russia have relied on the country for a higher percentage of their natural gas than Western European countries.
From 2020 to 2021, EU natural gas production decreased by 7.6 percent while imports increased by 4.3 percent, which was largely attributed to increased demand in Germany, Italy, France, Poland, and Spain.
Before Russia’s invasion of Ukraine and the subsequent sanctions placed on the country, the EU imported 83 percent of its natural gas, 45 percent of which came from Russia in 2021. By the end of 2022, the EU relied on Russia for only 12.9 percent of its natural gas imports, as shown below.
But this graph doesn’t show the whole picture. The EU was well connected to Russian natural gas via pipelines but was not nearly as connected to the LNG market with regasification terminals. Before Russia’s invasion, the EU had 21 operational terminals in 11 countries that could import 164 bcm/year. That’s roughly equal to the 155 bcm it imported from Russia in 2021, but a far cry from the estimated 344 bcm it actually imported that year.
Today, the EU has a regasification capacity of 178 bcm across 27 terminals in Greece, Italy, Spain, Portugal, France, Belgium, the Netherlands, Poland, Lithuania, Croatia, and Malta, and with a plan to increase capacity by almost 22 percent by the end of the year, the EU is making forward progress.
While this falls short of estimates from the International Group of Liquefied Natural Gas Importers, which expected the EU and the United Kingdom to increase their LNG import capacity by 34 percent by 2024, the future isn’t bleak.
Since Russia’s invasion, 195 billion bcm/year of LNG import capacity has been announced to come online by 2026. This would raise the EU’s LNG import capacity to 359 bcm/year – enough to meet the total amount of natural gas it imported in 2021.
The question is, who will supply the LNG?
U.S. LNG’s Role As A Stabilizing Power
Since the United States started exporting LNG to the EU in April 2016, U.S. LNG exports to the EU have skyrocketed, delivering a no-strings-attached reliable fuel to our allies.
Notably, more than 50 bcm, or half of all U.S. LNG exports went to the EU between January and November 2022, which was more than twice the 22 bcm the U.S. exported to the EU in 2021.
As EID previously discussed, the International Energy Agency reported that U.S. LNG played a “crucial role in mitigating the shortfall in Russian piped gas supply” following the unprecedented supply cuts to the EU in 2022. As Russian piped gas supplies to the EU continue to decline – already a 35 percent decrease from December 2022 to January 2023 – U.S. exports are likely to be even more relied upon: In January 2023, Europe received 68 percent of the 6.84 million tons of LNG the United States exported.
To meet increasing demand from the EU, the United States is projected to more than double its LNG export capacity over the next five years. Notably, four new LNG export projects are expected to come online this year, while three additional projects are expected to receive a final investment decision.
EID previously highlighted numerous LNG agreements with European companies that are driving long-term demand, and according to NGI:
“European buyers including Engie SA, Galp Energia SGPS SA, Ineos Group Ltd. and RWE AG have signed deals to buy U.S. liquefied natural gas for 15 years-plus. During the same time, Trafigura Group Pte. Ltd secured a $3 billion loan backed by the German government to buy more gas for the country. ConocoPhillips also signed contracts with QatarEnergy to move more of the super-chilled fuel to Germany.”
Early this year, U.S. LNG Association President and CEO Fred Hutchinson told the Washington Examiner that the new agreements demonstrate that the world recognizes the value of U.S. LNG and what it means for European energy security. Further, these new contracts show the world’s commitment to long-term investment in U.S. natural gas supply.
Bottomline: The European Union’s projected natural gas demand, especially via LNG, demonstrates a need for increased partnership with the U.S. LNG industry. The ability for the U.S. oil and natural gas industry to ensure a stable, reliable supply of energy will rely on global cooperation, as well as increased investments in domestic LNG production and critical infrastructure throughout the United States.
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