For two years, the European Union has been the biggest regional buyer of U.S. liquefied natural gas. Sanctions on Russia, including a ban on LNG purchased from 2027, have prompted the pivot, actively encouraged by the second Trump administration. But last month, Europe shunned American liquefied gas because it was too expensive. This will be a problem for the trade deal that just went into effect.
Last July, President Donald Trump and European Commission President Ursula von der Leyen signed a trade deal framework that would ensure preferential treatment for U.S. goods sold in the EU, notably including energy commodities. Indeed, Von der Leyen made a commitment on behalf of the 27 members of the EU for the purchase of $750 billion worth of American energy commodities over a period of three years. It need not be said that most of these purchases would be made up of liquefied gas, which the European Union continues to need in considerable volumes despite politicians’ and climate activists’ best efforts.
That this would be quite a challenge was clear from the beginning: $750 billion, or $250 billion annually, is quite a large sum that would buy a lot of oil and gas—indeed, all of the oil, gas, and coal that the U.S. has available for export, per Reuters’s Clyde Russell. Yet, leaving aside what is physically possible, the EU would also have a financial difficulty in meeting its trade deal obligations, as suggested by the latest import numbers.
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In June, European gas buyers took in less than half of all U.S. exports of liquefied natural gas. This was the first month in two years that Europeans had bought so little U.S. LNG, Reuters reported this week, citing data from LSEG. The reason was price. Europe’s benchmark TTF price averaged $13.19 per million British thermal units last month. In contrast, the Asian LNG benchmark averaged $17.33 per mmBtu—which is why most U.S. LNG exports went to Asia and to Egypt, which was in urgent need of gas. There is, however, a plot twist. The EU is also in urgent need of gas.
The European Union ended last heating season with much lower levels of remaining gas in storage than the five-year average because last winter was not as mild as the previous two. Now, the bloc faces the lowest gas in storage levels for next winter in 15 years, the Financial Times reported in late June. The report attributed the shortfall to the Middle East war and the disruption of supply from Qatar.
“While the announced US-Iran deal has pushed down gas prices and raised hopes for a flood of Mideast Gulf supply returning to the market, the longer we see constrained LNG supply, the lower start-of-winter European gas stocks will be and the bigger the chance of winter price spikes.” Argus Media analyst Natasha Fielding said, as quoted by the FT.
Yet there is plenty of U.S. liquefied gas, which the European Union can—and must—buy. However, there have been certain misgivings about that, despite the trade deal. Several U.S. energy industry executives told Bloomberg last month that European gas buyers are steering clear of long-term supply deals, for fear of developing an excessive dependence on one single gas supplier, essentially replacing the dependence on Russia with a dependence on the United States.
Officials in Brussels have the same misgivings. Their big problem is that there will always be a dependence on large suppliers, and that the EU has a commitment to become even more dependent on the biggest one. Meanwhile, European gas buyers have been gobbling up every cargo of Russian liquefied gas they could get their hands on, ahead of the 2027 ban on these purchases. As the ban comes into effect, the reliance on U.S. liquefied gas will inevitably increase. According to one pro-transition think tank, the EU will come to depend on the United States for up to 80% of its LNG imports. That would be up from 58% as of last year, the Institute for Energy Economics and Financial Analysis warned last month.
It is worth noting, of course, that the European Union does not only rely on liquefied gas. It also imports pipeline gas from Norway, Algeria, and Azerbaijan—but these are not enough to cover demand, especially after the Nord Stream conduit went out of business due to sabotage. To make matters even more complicated, the EU is effectively preventing Norway from boosting gas production that could then boost its exports to the bloc. Brussels is staunchly opposed to new gas drilling in the Arctic, where Norway’s untapped resources sit.
Until such time as the European Union’s leadership gets its priorities straight and decides whether it would rather become extremely dependent on a single gas supplier or diversify with more local supply, chances are the dependence will remain rather overwhelming.
By Irina Slav for Oilprice.com
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