Can the US supply enough natural gas to neutralize Russia’s energy impact on Europe?

Tanker for liquefied natural gas offshore.

The prospect of a conflict between Russia and NATO over Ukraine has raised fears of an energy crisis in Europe. Russia supplies almost half of Europe’s natural gas, and some leaders are worried that Moscow could increase the flow if hostilities begin. To weaken Russia’s leverage, the Biden administration is working to secure additional gas supplies to Europe from other sources. Expert on world energy policy Amy Myers Jaffe explains how much gas is available and what is involved in its diversion.

How dependent is Europe on natural gas and who are its main suppliers?

Natural gas is about one-fifth of all the primary energy used in Europe. It accounts for about 20% of electricity and is also used for heating and industrial processes.

Russia is the largest supplier of natural gas to Europe, shipping about 40% of deliveries to the continent are sent by pipeline. The next largest suppliers through the pipeline are Norway (22%), Algeria (18%) and Azerbaijan 9%. Europe also gets natural gas, which is liquefied and delivered by ships.

In recent months, European imports of liquefied natural gas, or LNG, from the United States and other countries have reached a record high of about 400 million cubic meters per day. To put this into perspective, a single LNG cargo ship can hold approximately 125,000-175,000 cubic meters of natural gas – enough energy to heat 17 million British homes in one winter day.

What are the biggest restrictions for exporters in sending more gas to Europe?

LNG is produced by cooling natural gas to minus 260 degrees[{” attribute=””>Fahrenheit (minus 162 degrees Celsius), which reduces its volume by a factor of more than 600. Natural gas is piped to a port, processed in a liquefaction plant, and then loaded into specialized insulated, temperature-controlled tankers for shipment by sea.

To receive LNG, an offloading port must have a regasification plant that converts the LNG back to a gaseous form so it can be sent by pipeline to end users. Both liquefaction plants and regasification plants cost billions of dollars and take multiple years to build.

Following a similar crisis in 2009, when a financial conflict with Ukraine prompted Russia to suspend gas shipments for 20 days, Europe substantially expanded its number of regasification facilities to 29. There is still currently space in European regasification receiving terminals to import more LNG, and plenty of storage space to hold imported supply virtually indefinitely. But many of the world’s top suppliers are maxed-out, with little capacity to produce and liquefy more natural gas than they are already moving.

The global LNG market has some flexibility. About two-thirds of all LNG is sold under firm, long-term contracts with fixed destinations. Some major contract holders like South Korea, Japan and China and their suppliers are willing to redirect cargoes to Europe if a further cutback in Russian exports creates a worsening supply crisis.

A look at the emergence of the US as a major exporter of natural gas with a focus on Freeport LNG.

Have suppliers redirected deliveries this way before?

The main example happened in 2011, when a tsunami caused melting and radiation emissions at Japan’s Fukushima-Daiti nuclear power plant. Japan has closed all its nuclear power plants to assess whether they were prepared for such disasters. LNG suppliers redirected gas supplies to Japan to help him overcome the immediate crisis.

Today, analysts say LNG manufacturers or importers can redirect cargo that they could compensate for about 10% -15% of any deficit. However, such shifts are likely to be at higher prices, and European consumers will get even bigger bills than they face now.

European Common Energy Supply

Will an increase in LNG supplies to Europe raise prices for American consumers?

The existing US LNG export capacity is operating at full capacity for several months. About half of LNG supplies to the United States in December 2021 were destined for Europe, pushed rising prices in European markets. Previously, the largest share of US LNG exports was sailing to Chinawhere drought-related restrictions on hydropower has created a surge in demand for natural gas.

In other words, American sellers were able to supply more gas to Europe distraction of export cargo, rather than by selling gas that would otherwise be used domestically. In my opinion, if US natural gas prices rise in the coming weeks, winter weather is likely to be a bigger factor than LNG exports.

Will Russia harm its own economy by stopping gas exports to Europe and losing those revenues?

In recent years, Russia has structured its federal budget in a way that allows it to hold $ 630 billion in foreign exchange reserves – cash held by central banks in other currencies for their own use, similar to individual savings accounts. Russian leaders can use these funds to withstand any new sanctions or unexpected changes in oil prices.

For example, last year the Kremlin based its spending on a conservatively low estimate of the loss-free oil price of $ 45 a barrel, which gave itself some leeway. Ultimately, average oil prices are 2021 $ 71 per barrelproviding significant budget revenue.

Thanks to this fiscal strategy, Russian President Vladimir Putin has amassed a military chest to withstand any new round of sanctions or even a complete loss of revenue from natural gas exports from Europe for a period of time.

Lahti Center, St. Petersburg

87-storey Lakhta Center, the headquarters of the Russian gas monopoly Gazprom, in St. Petersburg, Russia.

However, any Russian move to stop gas exports to Europe could have long-term consequences. Perhaps Putin hoped he was being brandished about natural gas high prices it caused, would convince Europeans that Russian gas is vital and cannot be replaced by renewable energy sources. But ironically, this tactic may have already generated strong disgust, which is accelerating Europe’s turn to sea ​​wind, Euro-North African hydrogen hubsand US LNG.

Gazprom, the Russian firm with the largest gas exports in Europe, could also find itself drifting in a sea of ​​lawsuits and high fines for breach of contract as a result of the shutdown. This, in turn, may affect Russian citizens, who also hope for the solvency of “Gazprom” as a winter fuel for heating.

Putin may be willing to rely on Europe’s energy price crisis to sow popular discontent, end energy transition and help Russia win concessions on the deployment of NATO troops and missiles. But there is little evidence that Europe will react in this way. While Europe’s transition to renewable energy will take time, in the long run it will still be bad news for Russia, which has 1,688 trillion cubic feet of natural gas reserves left to operate. as many as 100 years of supply.

Written by Amy Myers Jaffe, Research Fellow, Fletcher School of Law and Diplomacy, Tufts University

This article was first published in Conversation.Conversation Can the US supply enough natural gas to neutralize Russia’s energy impact on Europe?

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