US and EU reach LNG supply agreement to reduce dependency on Russia

The US and the European Union will push to increase supplies of liquefied natural gas to European countries by the end of 2022 in a bid to start displacing some Russian gas, a policy framework that now leaves the companies to work out the details.

Under the deal, Europe will get at least 15 billion cubic meters of additional LNG supplies by the end of the year, though it is unclear where that will come from. Member states will also work to ensure demand and facilities to absorb up to 50 billion cubic meters of US fuel until at least 2030. The goal is to work with international partners to help the continent wean off Russian gas, which accounts for around 40 percent of Europe’s needs.

“We are coming together to reduce Europe’s dependence on Russian energy,” US President Joe Biden said at a joint news conference with European Commission President Ursula von der Leyen, adding that 15 billion cubic meters this year “is a big step in that direction.” address.”

Europe is trying to diversify its energy sources in a bid to deprive Russia of the revenue it needs to finance the war in Ukraine. But that is a gigantic task. Russia sends about 150 billion cubic meters of gas to Europe through pipelines each year, and another 14 to 18 billion cubic meters of LNG. That means any disruption to pipeline gas flows from Russia would be difficult to manage.

“It’s a start, but relatively small compared to overall supplies from Russia,” said Jonathan Stern, a research fellow at the Oxford Institute for Energy Studies. “All contributions are welcome, but the task is huge.”

Details of the 15 billion cubic meters are sketchy. Contracts for the full volume have not been signed, US National Security Adviser Jake Sullivan said. It will come from “a variety of sources,” and not just the US, he said.

“We believe we have identified the sources so that we can reach that goal,” Sullivan told reporters on Air Force One on Friday. The United States has expanded the number of countries that can receive gas from its own terminals, has already worked to divert existing orders and has also had Biden engage with other countries, including Qatar, he said.

“So when you put all those pieces together, we feel pretty confident that we’re going to hit the bull’s-eye,” Sullivan said.

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The issue is critical as Russia is the largest supplier of gas to the EU. The EU also relies on the country for most of its coal and oil imports, and has struggled to shift its energy policy away from Moscow. Details of how the plan works are now in the hands of energy companies, with US LNG carriers and German buyers meeting next week in Berlin to discuss potential deals.

“While gas is still a substantial part of the energy mix, we want to make sure that the Europeans don’t have to get that gas from Russia,” Sullivan said.

The United States has already been supplying more LNG to Europe, with shipments doubling to a record 4.4 billion cubic meters in January and a similar level in February. Supplying another 15 billion cubic meters could be feasible as long as Europe continues to pay a premium for cargoes compared to Asian buyers. A significant boost to global LNG supplies will only come from 2025, when new projects are scheduled to come online.

It is also unclear whether the supplies would come from additional production or from shipments redirected from other regions. Currently, European buyers compete with Asian countries for the world’s limited supply of LNG cargoes.

Germany also revealed its own plan to slash Russian imports of fossil fuels and make the country almost completely independent of Russian gas by mid-2024. Critics say the plan is impossible to achieve as Germany is the biggest buyer of gas. Russian gas in Europe.

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The aspirational pact between the US and the EU is light on details. The senior Biden administration official said U.S. projects, either those already in operation or those with a permit to be built, can meet the 50 billion cubic meter demand, adding that Europe’s commitment to trying to meet that demand could boost planned US installations. final investment decision.

The United States worked with partners in Asia this winter to secure supplies, but is now working to build up stocks for next winter. The effort will require a lot of diplomacy, another official told reporters.

The EU wants to replace nearly two-thirds of its total gas imports from Russia this year after President Vladimir Putin’s war forced an unprecedented rethink of the bloc’s energy strategy.

The new energy strategy, outlined by the European Commission earlier this month, aims to replace 101.5 billion cubic meters of Russian gas by 2022 by turning to alternative supply sources, building renewables and boosting energy security. It also seeks to secure 50 billion cubic meters of LNG from new suppliers.

Europe’s ability to import more LNG is limited by current regasification capacity, the number of terminals and interconnectors, according to an EU official, who asked not to be identified commenting on private talks.

Still, the continent is in a much better place than it was earlier this year, with mild weather and more LNG imports helping the level of inventories return to the 5-year range, after falling to the lowest level. in more than a decade. Gas prices in Europe have fallen more than 60 percent since hitting a record earlier this month.

“If there is a Russian gas outage, the main challenge for Europe will be to refill its storage facilities before next winter,” said Simone Tagliapietra, an energy researcher at the Brussels-based think tank Bruegel. “This would require record imports of liquefied natural gas this spring and summer. The United States has an important role to play in supporting Europe in this eventual historic effort, being the largest exporter of liquefied natural gas in the world as of this year.”

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