Why the US can't quickly wean Europe off Russian gas

HOUSTON— President Biden announced on Friday that the United States would send more natural gas to Europe to help it break its dependen...


HOUSTON— President Biden announced on Friday that the United States would send more natural gas to Europe to help it break its dependence on Russian energy. But this plan will be largely symbolic, at least in the short term, because the United States does not have enough capacity to export more gas and Europe does not have the capacity to import much more.

In recent months, US exporters, encouraged by President Biden, have already maximized the efficiency of terminals that transform natural gas into liquid easily shipped on large tankers. And they diverted shipments originally destined for Asia to Europe.

But energy experts said building enough terminals on both sides of the Atlantic to grow significantly US exports of liquefied natural gas, or LNG, to Europe could take two to five years. That reality is likely to limit the scope of the natural gas supply announcement that Mr. Biden and European Commission President Ursula von der Leyen announced on Friday.

“In the short term, there are really no good options, other than begging one or two Asian buyers to abandon their LNG carrier for Europe,” said Robert McNally, who was energy adviser to the former president. George W. Bush. But he added that once enough gas terminals are built, the United States could become the “energy arsenal” that would help Europe break its dependence on Russia.

Friday’s agreement, which calls on the United States to help the European Union secure an additional 15 billion cubic meters of liquefied natural gas this year, could also undermine efforts by Mr. Biden and European officials to fight climate change. Once new export and import terminals are built, they will likely continue to operate for several decades, perpetuating the use of a fossil fuel far longer than many environmentalists consider sustainable for the well-being. to be of the planet.

For now, however, climate concerns appear to be taking a back seat as US and European leaders seek to punish Russian President Vladimir V. Putin for invading Ukraine in depriving it of billions of dollars in energy sales.

The United States has already significantly increased its energy exports to Europe. So far this year, nearly three-quarters of USLNG has gone to Europe, compared to 34% for all of 2021. As natural gas prices have soared in Europe, American companies have done everything what they could to send more gas there. The Biden administration has helped by urging buyers from Asian countries like Japan and South Korea to forgo LNG shipments so they can be sent to Europe.

The United States has plenty of natural gas, much of it in shale fields from southwestern Pennsylvania. Gas is springing up from the ground with oil from the Permian Basin, which straddles Texas and New Mexico, and producers there are gradually ramping up oil and gas production after drastically cutting production in the first year of the pandemic. , when energy prices collapsed.

But the big problem with sending more power to Europe is that natural gas, unlike crude oil, cannot easily be put on ocean-going ships. The gas must first be cooled in an expensive process at export terminals, mainly on the Gulf Coast. The liquid gas is then dumped into specialized tank trucks. When ships arrive at their destination, the process is reversed to convert the LNG back into gas.

A large export or import terminal can cost upwards of $1 billion, and planning, obtaining permits and completing construction can take years. There are seven export terminals in the United States and 28 large-scale import terminals in Europe, which also receives LNG from suppliers like Qatar and Egypt.

Some European countries, including Germany, were until recently not interested in building LNG terminals because it was much cheaper to import gas by pipeline from Russia. Germany is is currently relaunching the project to build its first LNG import terminal on its north coast.

“Europe’s gas needs far exceed what the system can supply,” said Nikos Tsafos, energy analyst at the Center for Strategic and International Studies in Washington. “Diplomacy can’t do much.”

In the longer term, however, energy experts believe the United States could do a lot to help Europe. With the European Union, Washington could provide loan guarantees for US export and European import terminals to reduce costs and speed up construction. Governments could require international financial institutions such as the World Bank and the European Investment Bank to prioritize natural gas terminals, pipelines and processing facilities. And they could ease regulations that gas producers, pipeline builders and terminal developers say have made it harder or more expensive to build gas infrastructure.

Charif Souki, executive chairman of Tellurian, a U.S. gas producer that plans to build an export terminal in Louisiana, said he hopes the Biden administration will streamline permits and environmental reviews “to ensure that things happen quickly without micromanaging everything”. He added that the government could encourage banks and investors, some of whom have recently shunned oil and gas projects in a bid to boost their climate credentials, to lend to projects like his.

“If all the big American banks and big institutions like BlackRock and Blackstone feel comfortable investing in hydrocarbons, and they won’t be criticized, we will develop the $100 billion in infrastructure we have. need,” Mr. Souki said.

A handful of export terminals are under construction in the United States and could increase exports by about a third by 2026. About a dozen export terminal projects in the United States have been approved by the Federal Energy Regulatory Commission, but cannot move forward until they secure funding from investors and lenders.

“That’s the bottleneck,” Mr. Tsafos said.

A dozen European import terminals are under construction or planned in Italy, Belgium, Poland, Germany, Cyprus and Greece, but most have not yet found their financing.

Russia supplies about 40% of Europe’s gas, and its biggest customers are usually in Eastern and Central Europe. Some countries have developed LNG import capacity, but much of it is in southern Europe, which is not well connected by pipeline to northern and eastern countries.

A month after the start of the war in Ukraine, Russian gas shipments to Europe have remained relatively stable, but that could change. Mr Putin suggested on Wednesday that countries hostile to Russia be required to pay for energy in rubles rather than euros or dollars. This would force European companies to deal with Russian banks that have been sanctioned by Western governments.

There are signs that European businesses and individuals may reduce their consumption of natural gas, partly because it has become too expensive. For example, Yara International, a major fertilizer manufacturer in Italy and France, said it would reduce production due to high raw material costs like natural gas.

While reducing demand would help, some climate scientists and activists worry that the Biden administration’s and European Union’s focus on building LNG terminals could deal a blow to efforts to fight global warming by encouraging the use of fossil fuels.

“There is a risk of locking in 20 or even 30 years of emissions from export infrastructure at a time when you really need to reduce your overall emissions,” said Clark Williams-Derry, senior researcher at the Institute. for Energy Economics and Financial. Analysis, a research organization.

Jason E. Bordoff, co-founding dean of Columbia University’s Climate School and former energy adviser to President Barack Obama, said the Biden administration could encourage more gas shipments to Europe while promoting cleaner alternatives like wind and solar power.

“Longer term, US government financing tools and diplomacy can help accelerate Europe’s transition to clean energy to reduce dependence on inevitably volatile hydrocarbons,” he said.

Some proponents of natural gas exports say the fuel could help Europe meet its climate goals by replacing the use of coal in power plants. Burning coal releases more greenhouse gases than burning gas.

Gina McCarthy, Biden’s senior climate change adviser, said Thursday the administration intended to “balance” what she called a “short-term emergency fix” to help the Europe to combat climate change.

“We cannot increase our dependence on fossil fuels,” Ms McCarthy told a group of renewable energy officials. “We make clear distinctions even in our conversations with the European Union.”

Lisa Friedman contributed reporting from Washington.

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Newsrust - US Top News: Why the US can't quickly wean Europe off Russian gas
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