US ramps up gas supplies to Europe amid scramble for new supplies

The US is increasing shipments of liquefied natural gas to Europe this year as the continent searches the world for new supplies to reduce its reliance on Russian energy after invading Ukraine.

Global efforts to wean Europe off Russian energy supplies were the focus of President Biden’s summit with European Union leaders in Brussels this week. The US aims to ship 50 billion cubic meters of LNG to Europe annually through at least 2030, officials said Friday, which accounts for about a third of the gas the EU receives from Russia. The EU imported a record 22 billion cubic meters of LNG from the US last year.

The surge in US gas supplies is only partly helping to fill the gap Europe faces in turning away from Russian gas. Officials across the continent are scrambling to sign new deals with producers in the Middle East and Africa before next winter. France has stopped subsidies for new gas heating in homes and will instead subsidize electric heat pumps. Italy, the second largest consumer of Russian gas after Germany, is considering burning coal instead of natural gas in some power plants.

On Friday, US and EU officials said they intend to supply the 27-nation bloc with an additional 15 billion cubic meters of LNG, using cargoes from the US and other countries.

Western nations want to end Russia’s grip on Europe as the continent’s main energy supplier and cut a lifeline for Russia’s economy. Natural gas poses the biggest problem for Europe because the fuel is much heavier than oil and coal – Russia’s other main energy exports to Europe – to import by boat from other suppliers. Gas that doesn’t flow through huge pipelines — like the Nord Stream 2 project that Germany recently shelved — has to be chilled into a liquid, shipped on a tanker, and then gasified again in special plants.

President Biden traveled to Poland after announcing that the US would increase natural gas supplies to Europe; While Russian strikes in Ukraine continued, officials in Mariupol said about 300 people were killed in a theater bombing last week. Photo: Associated Press

“Giving up Russian gas will cost Europe,” Biden said on Friday. “But not only is it morally right, it will make us much stronger strategically.”

The plan to end the consumption of Russian gas in Europe will take at least several years. Countries that produce LNG are running their export terminals at full speed, and building new ones takes time. The move away from gas from Russia – the region’s low-cost producer – is likely to put pressure on Europe’s energy bills, at least in the short term, before new renewable energy sources like wind and solar come online. The European Commission, the EU’s executive arm, has announced that it will cut Russian gas imports by two-thirds this year.

The US is the world’s largest natural gas producer and the largest exporter of LNG in January and December. Almost 70% of these LNG deliveries went to the 27 countries of the EU, Great Britain and Turkey.

“We are currently exporting any molecule that has a terminal to liquefy it,” said US Energy Secretary Jennifer Granholm. “Because of the price, there is a desire to liquefy it and ship it.”

Anatol Feygin, chief commercial officer at Cheniere Energy inc,

The largest US LNG exporter said around 70% of the LNG produced at the company’s plants is shipped to Europe by its customers. Although Europe has attracted larger volumes of US LNG than Asia this year, there is little market participants can do to send more to Europe, he said.

“Everyone asks what you can do in the short term to bring more volume to Europe and the only answer is to keep our facilities running as well and reliably as possible,” said Mr. Feygin. “There is no silver bullet that brings an extra one [LNG] train,” he added, referring to key facilities that cool natural gas to a liquid state.

The US says its LNG export capacity will grow another 20% by the end of the year. The EU imported 4.4 billion cubic meters of LNG from the US in January, a record. But that’s just a fraction of the 155 billion cubic meters of gas Europe imported from Russia last year – 45% of its total imports.

To fill the gap, Europe is stockpiling natural gas from other producers such as Algeria and Qatar. It’s also about curbing demand for the fuel by slashing subsidies for gas heating and potentially restarting coal-fired power plants that have been shut down to cut Europe’s greenhouse gas emissions. The high price of natural gas has prompted Germany and other countries to run their coal-fired power plants more intensively since last year.

Germany, the world’s largest importer of Russian gas, has been scrambling to find new supplies. This month, authorities signed an agreement to build the country’s first LNG plant and announced plans to build a second. Germany reached an energy deal with Qatar this week without disclosing the volume of supplies.

Germany’s plans for new LNG terminals and options for supply from non-Russian suppliers should allow Germany to halt Russian gas imports by 2024, German Economy Minister Robert Habeck said on Friday.

A separate plan to shut down Germany’s last three nuclear reactors by the end of this year, part of a year-long attempt to phase out nuclear power, will likely result in more natural gas being used to generate electricity, analysts say. Germany has said it is unsafe to keep the reactors operational beyond the end of the year.

France, which is less dependent on Russian gas due to its large nuclear power industry, is ending subsidies for new domestic gas heating and instead subsidizing electric heat pumps.

LNG storage tanks at a terminal operated by Polskie LNG SA in Swinoujscie, Poland.


Photo:

Bartek Sadowski/Bloomberg News

Poland, a large consumer of natural gas, plans to completely stop sourcing the fuel from Russia by the end of this year. Then the contract with the Russian energy giant Gazprom expires. It will make up the difference with LNG imports from the US and other countries, and gas through new pipelines from other European countries, including one from Norway, which is expected to come on stream later this year.

“If there are sanctions against gas today, we are ready to function without Russian gas because we have storage,” Anna Moskwa, Poland’s climate and environment minister, said in an interview.

Poland is among the most vocal European supporters of sanctions on Russian gas, coal and oil, despite 50% of its gas supplies coming from Russia. Poland has been preparing for years to end its dependence on Russian energy, spurred by Moscow’s 2014 annexation of Crimea.

“It was already a kind of energy gas war between Europe and Russia,” Ms Moskva said.

Italy has cleared the way to burn more coal by reactivating coal-fired power plants it shut down years ago to reduce greenhouse gas emissions. But such a move would increase Europe’s carbon emissions and complicate the continent’s plans to combat global warming. By firing up idle coal burning, Italy could save up to 4 billion cubic meters of gas per year. Italy generates around 85% of the electricity it needs and imports the rest from other European countries, mainly France.

Over the past decade, Italy’s gas consumption has been stable at 76 billion cubic meters per year. National gas production has fallen to 3 billion cubic meters from around 8 billion cubic meters in the same period, mainly due to the decline in gas available in domestic fields.

The result is that Italy imports around 96% of the gas it needs. In recent decades, imports from Russia have increased from 25% to 38% of Italy’s national consumption.

Since Russia began invading Ukraine, Italian Foreign Minister Luigi Di Maio has been on a whirlwind search for more gas suppliers and has met with the governments of Algeria, Angola, Congo and Qatar. He secured an additional annual supply of around 17 billion cubic meters, more than half of which would come from Algeria via an inter-country pipeline.

The additional Algerian gas will flow to Italy from the summer. The rest comes as LNG from Qatar, Angola and Congo. Currently, Italy can process an additional 6 billion cubic meters of imported LNG to reach the maximum capacity of its existing three regasification terminals, which normally process around 10 billion cubic meters of LNG.

The Italian government asked state-controlled gas company Snam to discuss acquiring a floating storage and regasification facility and lease a second. The country plans to expand its regasification capacity by up to 24 billion cubic meters using floating facilities, but it will take at least a year to do so.

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Italian Foreign Minister Luigi Di Maio has been on a rapid spree to find more gas suppliers.


Photo:

Riccardo Antimiani/Shutterstock

Last week, Mr. Di Maio also secured an additional shipment of LNG from Mozambique.

It would take Rome three years to fully replace Russian gas, the government said last week. Italy would be done with the current stock and the initial inflow of the recently secured additional supplies by the end of October.

It could resort to gas rationing among Italian companies from next winter if Russian gas supplies are halted, Italian Environment Minister Roberto Cingolani said last week. However, the government considers this to be an extreme scenario that it must nevertheless prepare for.

“We cannot be so dependent on the decisions of a single country. Our freedom is at stake, not just our prosperity,” said Italian Prime Minister Mario Draghi.

write to Matthew Dalton at Matthew.Dalton@wsj.com and Giovanni Legorano at giovanni.legorano@wsj.com

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