Wed. Oct 5th, 2022

Prof. ST Hsieh

Director, US-China Energy Industry Forum

626-376-7460

[email protected]

July 1, 2022

This news headline tells the story:

EU prepares emergency plan to do without Russian energy!

It is certainly very good news for US LNG export industry that Europe becomes a captive market for as long as Natural Gas is not banned because CO2 emissions. So, US natural gas producers are slowly increase outputs and new LNG export terminals are being designed/approved and constructed. These mega infrastructure projects will take few years to reach the full capacity.

We do not know the specifics of US LNG export contract with European nations. There were news reports that when Europe, desperately seeking natural gases for offsetting Russian natural gas, discussed with Qatar. However, the contract term becomes an issue. Qatar demanded a long-term contract for two decades, but Europe insisted the contract term be limited to one decade. Europe is fully committed to the global climate promises. Basically, global LNG market is a seller’s market, Europe nations will have to pay a primum for her natural gas supply security for the future. It is cost for supporting the war in Ukraine now.

When the world is in peace with a strong global economy, Europe should be able to shoulder this additional natural gas cost and pass it to the global consumers. Unfortunately, global economy is already in big trouble and a global recession is almost inevitable. COVID-19 global pandemic is not over yet, but the global supply chain is seriously broken. In the US, inflation and even shortage of skilled labor and consumer products such as baby foods, challenges are unprecedented.

Europe under the leadership of US, exercised “unprecedent” sanctions against Russia invasion of Ukraine on February 24, 2022. But all these sanctions have not broken the back of Putin as Russian military actions are gaining ground in Ukraine day by day. President Zelensky has asked for more military equipment and financial support in every TV appearance. There was one estimate that the total “investment” from the west in support of Ukraine war already exceeded US$100B and increasing every day.

The” unprecedented” sanctions are not free, especially sanctions against Russia energy are already causing panic in Europe. For example, Germany has reactivated 10 GW of coal fired power plants which were “retired” in honor of Paris Global Climate Change Accord. Germany also plans to “bailout” her natural gas-power company Uniper, it amounts to nationalize the natural gas business. Obviously, Europe’s economy is near a crisis and facing a “cold” winter in 2022, if the war in Ukraine is still on.

It also should be noted that Russian pipeline natural gas export to Europe does not necessarily mean these European sanctions against Russia are effective. The real reason is that Putin has “weaponized energy” proactively reducing Russian energy export to Europe. It is common knowledge that if Putin fully stops natural gas supply to Germany, Germany’s economy will be grinded to a full stop immediately. The ripple effects will be an immediate global recession. In this sense, Europe is not in the driver seat for this war induced energy crisis. The real bad news is that no one has any clue on how and when the war in Ukraine will end: it is an open wound!

US LNG has eclipsed Russian pipelines for the first time as a source of natural gas for Europe, IEA says

Brian Evans

Fri, July 1, 2022, 7:11 AM

  • US LNG supplies to Europe eclipsed Russian pipeline flows for the first time, the IEA’s chief tweeted.
  • “The drop in Russian supply calls for efforts to reduce EU demand to prepare for a tough winter,” Fatih Birol said.
  • The Kremlin has been cutting flows via the Nord Stream pipeline in recent weeks.

US liquefied natural gas exports to Europe overtook Russian pipeline flows for the first time last month, according to the International Energy Agency’s chief.

Russian supply accounted for one-third of Europe’s gas demand last year, but the Kremlin has been curbing flows via the Nord Stream pipeline. Meanwhile, Europe has turned to the US as an alternative to Russian gas after Moscow’s invasion of Ukraine.

“Russia’s recent steep cuts in natural gas flows to the EU mean this is the 1st month in history in which the EU has imported more gas via LNG from the US than via pipeline from Russia. The drop in Russian supply calls for efforts to reduce EU demand to prepare for a tough winter,” IEA Executive Director Fatih Birol tweeted on Thursday.

US exports of LNG are steadily ticking up even after a fire at the Texas-based Freeport export terminal suffered damage from a fire that shuttered the facility.

But when accounting for overall gas flows, Russia may still be a bigger supplier to Europe than the US. Russia was the third-largest supplier of LNG to Europe in 2021 behind the US and Qatar, Bloomberg noted.

The US began exporting LNG in 2016 in an effort to diversify energy trade. LNG is cooled down to freezing temperatures for ease of storage and transport as it only takes up a fraction of the space that general natural gas does.

And Europe is growing more dependent on US-sourced LNG after Russia’s invasion of Ukraine, as the EU agreed earlier this year to an additional 15 billion cubic meters of the super-chilled gas to alleviate a lack of Russian supply.

The EU is pushing even further now and wants to fully replace its one-third dependence on Russian flows from sources across the globe. Russia averaged roughly 150 billion cubic meters of gas to Europe annually, and an additional 14 million to 18 million cubic meters of LNG.

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