US, EU Strike LNG Supply Deal
A transatlantic task force will be formed to oversee the EU’s goal of reducing Europe’s dependence on Russian fossil fuels and strengthen European energy security.
The US and its international partners will work to supply 15 Bcm of LNG to the European Union this year to help replace Russian energy supplies. The transatlantic partners struck the supply deal during US President Joe Biden’s visit to Europe this week.
The EU is aiming to cut its dependency on Russian gas by two-thirds this year and end all Russian fossil fuel imports by 2027. Europe gets about 40% of the gas used to power its homes and businesses from Russia. The International Energy Agency estimates that Europe used 155 Bcm of Russian gas in 2021.
Concerns over gas supply security were reinforced this week after Russia ordered gas contract payments to be made in rubles, raising the risk of a supply squeeze and even higher prices.
As part of the broader agreement, US and Europe will assure stable supply with an addition of at least 50 Bcm of US LNG until 2030. That replaces one-third of the gas Europe receives from Russia. To accomplish this, the European Commission (EC) will work with its member states to store gas across the continent, build infrastructure to receive LNG, and take steps to increase gas efficiency.
Rystad Energy expects the majority of the 50 Bcm to come from long-term contracts. That will underpin at least 35 mtpa of new US liquefaction capacity equivalent to seven trains at Cheniere's Sabine Pass facility in Texas and require up to $35 billion of investment, the Rystad research note added.
“We need to secure our supplies not just for next winter, but for the years ahead and this is a big starting point to do that,” said EC President Ursula Von der Leyen. “We aim to reduce this dependency on Russian fossil fuels and get rid of it.”
The EU is preparing an upgraded regulatory framework for energy security of supply and storage to enhance certainty and predictability as well as ensure closer cooperation within the EU and its neighboring partner nations. The EC has proposed regulation on energy storage to ensure that the existing storage infrastructure is filled up to 90% of its capacity by 1 November each year, with specific phase-in provisions for 2022. The EC will coordinate with the member states and provide transparency with respect to available LNG capacity in EU terminals.
“Interestingly there is no statement about reducing Russian gas purchases this year,” noted Rystad. “This may be why the goal to fill 90% of European storage is back on after being reduced to 80% earlier in the week. The return of the 90% target indicates confidence from both the EU and US in their ability to provide sufficient LNG to meet demand.”
On 25 March, Germany approved legislation requiring its privately operated gas storage facilities to be full at the start of the next winter, requiring 65% filled by 1 August, 80% by October, and 90% by November. Current storage is 25%.
According to the White House, a joint task force will be formed to oversee the goal of reducing Europe’s dependence on Russian fossil fuels and strengthen European energy security.
The Task Force for Energy Security will be chaired by yet-to-be-named representatives from both the White House and the EC president. It will work to ensure energy security for Ukraine and the EU in preparation for next winter and the following one while EU infrastructure is put in place.
The task force will organize its efforts around two primary goals: diversifying LNG supplies in alignment with climate objectives and reducing demand for natural gas.
The plan for reducing demand includes efficiency solutions such as smart thermostats and heat pumps. It also includes expediting planning and approvals for renewable energy projects and strategic energy cooperation, including on technologies where both the US and EC excel such as offshore wind.