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Monday, December 5, 2022

Europe and the United States have made ambitious plans to reduce their reliance on Russian natural gas

On Friday, the United States and European leaders announced an agreement to expand natural gas imports in order to assist Europe in weaning itself off on Russian energy. Also this year, Germany set an ambitious aim of reducing its imports of Russian oil and coal by the end of the year and completely weaning itself off its reliance on Russian natural gas by the mid-2020s.

Germany’s timeframes, as detailed by its vice chancellor, represent a stunning turnaround for Europe’s biggest economy, which has long been reliant on Russian energy for a significant portion of its output. Only a few months ago, Germany was still pursuing the construction of a new natural gas pipeline from Russia to Germany, which would be known as Nord Stream 2.

The agreement he unveiled in Brussels earlier on Friday lacked many specifics, but it addressed several significant objectives: This year, the United States would ship an extra 15 billion cubic metres of liquefied natural gas to Europe, accounting for around 10 to 12 percent of total annual U.S. exports to all nations at the moment. Increasing supply by as much as 50 billion cubic metres per year, according to the president, is the goal for the United States by 2030.

Many in the energy business in the United States were taken by surprise by the developments. Execs from the oil and gas industries, who have grown used to being vilified for their contributions to climate change, were unexpectedly enlisted to assist in the liberation of European friends from the Russian energy monopoly. While the industry was unsure how Europe would pull off such a massive 180-degree turn, CEOs were plainly delighted with their newfound status as saviours rather than villains.

A scarcity of port capacity to transport and receive additional natural gas on both sides of the Atlantic was one of the issues they did not address in their report. Moreover, the Biden administration will be hampered by the fact that it cannot simply command U.S. exporters to sell natural gas to European purchasers or to establish prices that are acceptable to those buyers.

Germany has been one of Russia’s most important consumers for a long time. Germany has been more reliant on natural gas since it opted to shut down its nuclear power reactors. For this reason, it chose not to construct any liquefied natural gas import facilities, despite the fact that it received very inexpensive gas via pipeline from Russia — as well as some from the Netherlands, Norway, and other sources.

Germany also imports about a third of its crude oil from Russia, which is the world’s largest producer. By providing large subsidies for electric vehicles and increasing investment in public transit, it has attempted to reduce its use.

Recently, gas exporters in the United States began diverting sales from Asia to Europe, primarily because prices in Europe have been higher than almost anywhere else in the world as a result of rising tensions with Russia and, more recently, the conflict in Ukraine, according to the International Energy Agency. Exports of long-lasting goods from the United States have reached over 75% of total exports so far this year, up from 34% in 2021. Export restrictions to specific European nations have been eased by the Biden administration, which has aided in this transition.

Charlie Riedl, the executive director of the Center for Liquefied Natural Gas, a trade organisation, believes that increasing the amount of natural gas exported from the United States to Europe by 15 billion cubic feet could be accomplished quite cheaply. He estimated that two-thirds of that amount may come from diverting shipments that would otherwise be headed to Asia, with the other third coming from recent government licences for expanded production at existing American L.N.G. export facilities.

According to Mr. Riedl, “It is unquestionably a good indicator that Europe is making efforts to wean itself off of Russian natural gas.”

Natural gas export facilities, where natural gas is frozen into a liquid and pumped onto oceangoing tankers, are expected to see more activity under the Biden administration, according to industry officials. The United States and the European Union might potentially give loan guarantees for export terminals in the United States and import terminals in Europe. There are perhaps a dozen export terminals in the United States that have received regulatory clearance but are still in the process of being developed. Approximately ten European import ports are now under construction.

“As Europeans, we want to diversify away from Russia and toward suppliers who we trust, who are allies, and who are dependable,” said Ms. von der Leyen, a representative of the European Commission, during the announcement with President Biden. Consequently, the pledge by the United States to provide the European Union with an extra minimum of 15 billion cubic metres of L.N.G. this year is a significant step forward, since it will replace the L.N.G. supply we presently get from Russia.”

Oil and gas executives, though, said Mr. Biden and Ms. von der Leyen would have to be patient and accept that choices on who sold gas to whom would be made across negotiation tables by private corporations, not by politicians, when it came to the sale of natural gas. Exporters will ultimately want to sell their natural gas to purchasers prepared to pay the greatest possible price for it.

“We are operating in a capitalist system,” Mr. Souki, the Tellurian CEO, said. ” “It is individuals like myself who are in charge of making such judgments. The government is unable to direct us as to where to deliver the gas.”

David Faber
I am a Business Journalist of The National Era
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