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Europe's Shift from Russian Gas to Pricey LNG

Europe's Shift from Russian Gas to Pricey LNG

Europe's switch from Russian pipeline…

Irina Slav

Irina Slav

Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.

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EU Inks LNG Deal With U.S. To Replace Russian Gas

  • The United States will deliver at least 15 billion cubic meters of liquefied natural gas to the EU this year more than previously planned.
  • U.S. LNG exports to the continent have increased drastically.
  • Analysts: U.S. LNG producers cannot produce all the LNG Europe will need.
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The European Union and the United States have announced a deal for more U.S. liquefied natural gas exports to the EU as the latter seeks to replace Russian supplies, on which it is dependent.

According to the terms of the deal, the United States will deliver at least 15 billion cubic meters of liquefied natural gas to the EU this year more than previously planned, the White House said in a fact sheet. For context, Russia exported over 59 billion cubic meters of natural gas to Germany alone last year, a record high.

"The European Commission will work with EU Member States toward the goal of ensuring, until at least 2030, demand for approximately 50 bcm/year of additional U.S. LNG that is consistent with our shared net-zero goals. This also will be done on the understanding that prices should reflect long-term market fundamentals and stability of supply and demand," the fact sheet also said.

Meanwhile, U.S. LNG exports to the continent have increased drastically, with as much as 70 percent of them going to Europe in the past two months, up from a previous 30-percent share, according to Evercore ISI.

"The recently announced EU energy supply reconfiguration could be the largest change in European energy consumption since the end of the Second World War," said Evercore ISI analyst Sean Morgan earlier this week, as quoted by American Shipper.

According to other analysts, U.S. LNG producers cannot produce all the LNG Europe will need, so they will need to redirect cargo from other buyers to satisfy Europe's gas demand.

"We expect near-term measures to support European LNG imports to rely on the reallocation of existing supply," Goldman Sachs said in a recent report cited by Reuters, adding that "such a relocation to Europe is already happening." The reallocation was made possible by record-high gas prices in Europe, which have also made U.S. LNG competitive with pipeline gas.

Yet a lot of U.S. LNG is already contracted, one analyst noted, so European buyers will have to pay even higher prices.

"But almost all of it [LNG] in the U.S. already belongs to somebody. It is under contract," the head of business development at energy and shipbrokers Poten & Partners told Reuters. "If Europe wants more LNG, they are going to have to pay for it," Jason Feer said.

By Irina Slav for Oilprice.com


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  • Mamdouh Salameh on March 25 2022 said:
    Russia supplies 200 billion cubic metres of gas (bcm) and 15-16 million tonnes (mt) of LNG (equivalent to 21-22 bcm) annually to the EU amounting in total to 221-222 bcm. This compares with 15 bcm of LNG which the US will be supplying annually to the EU amounting to 6.76% of Russian gas and LNG exports to the EU.

    At this rate, the US will take almost 15 years to replace all Russian gas exports to the EU. But since a lot of U.S. LNG is already contracted, this won’t be possible. Moreover, LNG prices are far higher than Russian piped gas. Therefore, European buyers will have to pay hefty prices for US LNG supplies thus impacting adversely on the EU budget.

    And while US LNG could help the EU reduce by a tiny measure its dependence on Russian gas supplies, this dependence will continue well into the future.

    The entire American, Qatari and Australian LNG exports and also Norway’s piped gas exports to the EU could barely replace Russian gas supplies particularly that the bulk of these exports are already contracted for in the Asia-Pacific region where LNG fetches higher than Europe’s.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London
  • only mho on March 28 2022 said:
    Eu should drill, frack and produce their own NG.

    They have proven reserves - just don't want to produce it themselves.

    US should retain their own NG - a limited resource that will only be used up faster with large new exports.

    The cost of domestic production will increase as those NG reserves are depleted - the least expensive production is being generated first and will result in cost increases on the marginal production.

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