There is no quick fix to Europe’s energy dilemma
As recently as the beginning of this year, European gas import pricing policy was framed in the buyer’s market that had dominated since the price crash of 2008. Those conditions no longer apply.
Europe needs to execute a quick about-face on how it commits to buying natural gas from international suppliers outside of Russia if it wants to reduce its energy dependence on Moscow.
Last week’s joint EU-US statement encouraging US exports of liquefied natural gas to Europe is helpful, but not sufficient. Directing or redirecting spot market cargoes from the US to Europe is relatively easy to support. A short-term solution is also easier to reconcile with Europe’s long-term net zero carbon emissions commitments.
The export of US LNG cargoes has been more focused on the spot market for years than production from suppliers such as Qatar, which has, at least in the past, been more insistent that its LNG be contracted for specific destinations. .
In addition, more LNG on the spot market has been available in recent months from Nigerian facilities, possibly because less gas was in demand by domestic buyers in the country.
Today, however, European industrial and domestic gas consumers may effectively be forced to lock in their long-term LNG purchases. At the moment, that seems cheaper than accepting today’s absurdly high spot market prices, but in a few years (or months), long-term contracts may mean accepting a higher price for relative safety. .
Gas supply trade-offs in Europe therefore require not only potentially costly burdens on consumers and industries, but also securing political commitments from US regulators and legislators.
For example, it was not until February 18 that the United States Federal Energy Regulatory Commission issued new general policy guidance for natural gas projects, including LNG terminals and pipelines needed for new exports to the United States. Europe.
The new orientation pass by the three Democratic members of the five-person FERC, included a new climate-related test for gas projects, as well as greater deference to landowners and environmental justice groups. After President Joe Biden signed the LNG Trade Statement with European Commission President Ursula von der Leyen last week, FERC hastily agreed to reconsider guidance and solicited more comments.
Given the very strong support of the American public for actions to help Europe, this pause in regulatory restrictions on gas exports is in place – for now. Not forever, however, as party and climate activists will exert continued pressure ahead of the 2022 and 2024 midterm general elections.
So while administrative and regulator support for Europe against Russian influence is strong now, LNG approval processes are lengthy. Europe does not have an eternity to collect its political capital.
The sponsors of such projects, and their financiers, are also well aware that Europe’s LNG import capacity is nearly exhausted. Germany and France are now offering to contract for floating regasification plants to be moored near existing gas pipelines. Spain has uncommitted import capacity, but limited connectivity with France and the rest of Europe.
There is now discussions between France and Spain on the relaunch of the MidCat gas pipeline project to link the countries’ gas systems, abandoned in 2019. Any restart would face economic, environmental and community objections.
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The first new US LNG available is supplied by Venture Global’s new Calcasieu Pass plant, which started the expedition in Europe on March 1. The Calcasieu Pass project utilizes a modular LNG liquefaction plant design from Baker Hughes’ facility in Avenza, Italy, and can be incrementally expanded over the coming months and years. Global company look for FERC approval of a Calcasieu 2 project by next February, and already has pipeline capacity to supply its gas.
Other modules have been contracted by Venture Global for another facility, Plaquemines LNG, near New Orleans. These would be phased in over the 30 months from April 2025.
Cheniere Energy’s Sabine Pass LNG export facility, also in Louisiana, is currently being expanded to accommodate a sixth large “train,” as liquefaction plants are called. It is in the process of “going live” and should be available later this year.
But once you get past those projects, FERC approvals and even site prep are years away. LNG liquefaction plant operators appreciate the tariffs now available on the energy spot market.
Europe cannot maintain its competitive position while paying these high spot prices. It can only seize more certain and secure LNG capacity with long-term contracts, even if that contradicts a decade-long policy goal.