Can the US find enough natural gas sources to neutralize Russia’s energy leverage over Europe? – Is it good?

Amy Myers Jaffe, Tufts University

The prospect of conflict between Russia and NATO countries over Ukraine has raised fears of an energy crisis in Europe. Russia supplies nearly half of Europe’s natural gas, and some leaders fear that Moscow could tighten the flow if conflict flares up. To weaken Russia’s leverage, the Biden administration is working to secure additional gas shipments to Europe from other sources. Global energy policy expert Amy Myers Jaffe explains how much gas is available and what is involved in rerouting it.

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

Natural gas represents about one over five of all primary energy used across Europe. It accounts for about 20% of electricity production and is also used for heating and industrial processes.

Russia is the largest supplier of natural gas to Europe, sending about 40% of the continent’s supplies are transported by pipeline. The next largest suppliers through the pipeline are Norway (22%), Algeria (18%) and Azerbaijan 9%. Europe also receives liquefied natural gas and ships it.

In recent months, Europe’s imports of liquefied natural gas, or LNG, from the US and elsewhere have hit a record level of around 400 million cubic meters per day. In other words, an LNG cargo ship can hold around 125,000-175,000 cubic meters of natural gas – enough energy to heat 17 million UK homes on a single winter’s day.

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

LNG is made by cooling natural gas to minus 260 degrees F (minus 162 degrees C), reducing its volume. factor more than 600. The natural gas is piped to the port, processed in a liquefaction plant, and then loaded into specially insulated, temperature-controlled tankers for shipping by sea.

To receive LNG, an offloading port must have a gas regeneration plant to convert the LNG back into a gaseous form so that it can be pipelined to the end user. Both liquefaction and re-freezing plants cost billions of dollars and take years to build.

After a similar crisis in 2009When a financial conflict with Ukraine caused Russia to suspend gas shipments for 20 days, Europe significantly expanded its number of gas refueling facilities to 29. current space at European stock receiving terminals to import more LNG, and more storage space to house a virtually indefinite supply of imports. But many of the world’s top suppliers are maximumwith small capacity to produce and liquefy more natural gas than is moving.

The global LNG market has some flexibility. About two-thirds of all LNG is sold under long-term, corporate contracts with fixed destinations. Some major contract owners such as South Korea, Japan and China and their suppliers are ready to redirect cargo shipments to Europe if further cuts in Russian exports create a supply crisis. the more severe. https://www.youtube.com/embed/4jGrXsE6YqQ?wmode=transparent&start=0 A look back at the rise of the United States as a major natural gas exporter, with a focus on Freeport LNG.

Have suppliers rerouted shipments this way before?

The main example occurred in 2011 when a tsunami caused a meltdown and radioactivity at Japan’s Fukushima Daiichi nuclear plant. Japan has closed all of its nuclear plants to assess whether they are prepared for similar disasters. LNG supplier divert gas shipments to Japan to help it get through the immediate crisis.

Today, analysts say LNG producers or importers can divert possible shipments make up about 10%-15% of any shortfall. However, such changes will likely come at a premium, leaving European consumers with an even higher bill than they currently have.

Will increased US LNG shipments to Europe drive up prices for US consumers?

Existing US LNG export facilities have been operating at full capacity for several months. About half of US LNG shipments in December 2021 is intended for Europe, driven by price increase in the European market. Previously, a larger share of US LNG exports was sailing to Chinawhere restrictions related to drought hydroelectric power has created an increase in demand for natural gas.

In other words, sellers in the US were able to supply more gas to Europe by export goods redirection, instead of selling gas that would have been used domestically. In my view, if US natural gas prices rise in the coming weeks, winter weather is likely to be a bigger driver of LNG exports.

Wouldn’t Russia hurt its own economy by cutting off gas exports to Europe and losing those revenues?

In recent years, Russia has structured its federal budget in a way that allows it to store $630 billion in foreign exchange reserves — cash held by the central bank in other currencies for use. discretionary, like a personal savings account. Russian leaders could use these funds to get around any new sanctions or unexpected changes in oil prices.

For example, last year the Kremlin based its spending on a conservatively low breakeven oil price estimate of $45 per barrel, giving itself some latitude. Finally, the average oil price in 2021 $71 a barrelbring in quite a large budget revenue.

Through this financial strategy, Russian President Vladimir Putin has amassed an arsenal of war to withstand any new round of sanctions, or even a complete loss of natural gas export revenue from Europe. over a period of time.

However, any move by Russia to cut off gas exports to Europe could have more lasting consequences. Putin may have hoped that his sword was knowledgeable about natural gas, and high price it activated, will convince Europeans that Russian gas is important and cannot be easily replaced by renewable energy. But ironically, this tactic may have created a lasting distaste that quickly set Europe’s pivot on track. Seabreeze, Europe-North Africa hydrogen centers and US LNG.

Gazprom, the Russian company with the largest footprint of gas exporters in Europe, could also be caught up in a sea of ​​lawsuits and high penalty fees for breaching contractual commitments after the severance. That could affect the Russian people, who also rely on Gazprom’s ability to pay for their winter heating fuel.

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Putin may be willing to bet that an energy price crisis in Europe will sow discontent, turn the energy transition around, and help Russia. win concessions on the positioning of NATO troops and missiles. But there is little evidence that Europe will react that way. While Europe’s transition to renewable energy will take time, it will still be bad news in the long run for Russia, whose remaining 1.688 trillion cubic feet of natural gas reserves will to be exploited. as much as 100 years of supply.

Amy Myers JaffeResearch Professor, Fletcher School of Law and Diplomacy, Tufts University

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