European energy supply risk increases after US restricts LNG exports
Originally published at Europe in Review on February, 2024
Europe may have reduced its dependence on Russian gas in favour of American gas, but it may have traded one political risk for another, as President Joe Biden froze new US export licences for natural gas to Europe. [ WH] [NYT] [Bloomberg]
The White House cited climate change on January 26 as the rationale to limit the approval of new gas export terminals that European capitals had counted on to ensure supply for the new liquified natural gas (LNG) terminals being built on the Baltic and elsewhere in Europe.
Two years ago, Europe decoupled from its dependence on Russian gas supplies in the wake of the Russian invasion of Ukraine. Germany, which had made the policy decision under Chancellor Angela Merkel to replace domestic coal and nuclear power with Russian natural gas, responded with a massive build-out of LNG terminals on its north coast to import the gas it used to import by pipeline. [EiR] [Forbes]
This response and the build-out of other terminals have enabled Europe to import natural gas from non-European sources by sea. While pipeline imports from Norway and North Africa have increased, LNG has become a critical component of European energy.
The US is by far the world’s largest LNG exporter, followed by Middle Eastern sources, and is the largest source of European LNG imports.
The European energy system has changed dramatically in the past two years. Before the war in Ukraine, Europe sourced most of its natural gas by pipeline and over half of that from Russia in 2021. [IEEFA]
During 2022-2023, LNG imports increased by 60% to compensate for the loss of Russian pipeline gas due to EU sanctions. While the EU has subsidised renewable energy build-out under the RePower EU plan, the need for more energy storage to complement new solar and wind intermittent power projects has meant that Europe has had to rely mainly upon European-wide policy-mandated energy demand reductions and new energy imports. [EC]
EC President Ursula Von Der Leyen and US President Biden announced a joint plan to expand American energy exports to meet European energy needs in 2022. [CBS]
US natural gas export capacity rapidly expanded in the next two years, significantly driven by European demand. US liquefaction capacity, the capacity to liquefy natural gas for export, was set to increase 63% from 84 million metric tons (mt)/year to 137 mt/year with new projects in 2024-5. [S&P]
An unforeseen policy decision now blocks this planned wave of LNG expansion. US industry observers are comparing the earlier decision of the Biden administration to block the previously planned Keystone crude oil pipeline project from Alberta, Canada, to the US Gulf Coast in 2021.
Europe has weathered the last two winters without power or heat interruptions primarily due to new energy imports from what was deemed a source without the political risk associated with the Middle East and current conflicts.
This calculation has proved incorrect, as the perceived long-term risk of climate change in the US and Europe has become a short-term risk to the European energy supply. [Politico]
(rw/gc)