By Vladislav Inozemtsev
In the wake of Russia’s invasion of Ukraine, the EU began frantically shopping for new energy suppliers, eventually settling on American liquified natural gas (LNG). By the end of 2022, 31.2 bcm of American LNG had offset almost half of the decline in European Russian imports. With LNG shipments tripling between 2021 and 2023, the U.S. became the unsung savior of Europe, while LNG imports from Norway grew only by 10% and from Qatar by 28%. The crisis and Russian prospects for a victory in its energy war against Europe appeared to be over.
Still, the consequences of the initial shock still linger. European energy consumption has not yet recovered to its pre-war levels Europeans consumed 19% less natural gas in 2023 compared to 2021. Moreover, LNG now makes up the bulk of Europe’s gas intake, having replaced piped gas. LNG has also helped replace dirtier energy sources like oil and coal. Still, some environmentalists are unhappy, even though LNG is cleaner than both. Ukraine supporters, too, seemed irked by the overall costs. Spiking electricity prices at the onset of the conflict hurt households, and staving off the worst required governments to spend on subsidies, at a time when Covid-19s recent and lingering impact on budgets was already creating inflationary pressures.
These concerns meant even the most strident Ukraine supporters showed hesitancy to entirely cut off Russian flows. American LNG is changing that calculus. Even as Russia’s overall energy exports to Europe shrank precipitously, Russia’s LNG exports to Europe grew by 40% between 2021 and 2023 and would have continued to grow even more if not for the war. The U.S. government aims to close this gap by sanctioning Russia’s largest LNG project, Arctic LNG-2. U.S. sanctions include measures against the building of ships intended for Russian LNG, which enabled America to export more.
Endemic instability in the Middle East has tilted the scales even further in America’s favor. Following the regional conflict that began in October 2023, the safety of maritime routes in the Red Sea and Straits of Hormuz has come into question. Almost 20% of global LNG travels via Hormuz under the shadow of conflict.
Assessments by the Department of Energy bear this out. Last year, U.S. LNG exports increased by 24.5 % relative to their December 2022 levels. Exports also noticeably spiked after Houthi attacks on shipping, rising by 9.5 % between November and December last year. Houthi attacks show no signs of abating, so this trend will likely persist as Europe opts for supply reliability above all else. Having learned its lesson from overreliance on Russia, even the end of the Houthi threat might not be enough to quell European concerns, as Europe’s risk tolerance is understandably low. Even if security were not a lingering concern, U.S. LNG exports would likely continue to grow as Europe paid less than any other region for U.S. LNG exports, approximately $6.62/MMBtu. Win-win propositions like these are rare these days, as global tensions seem to escalate by the day. Despite this, some still refuse to see this development as good news.
Unfortunately, politics is obstructing good policy. Responding to environmentalists and concerned about the enthusiasm of parts of the Democratic base going into the 2024 elections, the White House ordered a freeze on all new U.S. LNG export projects, halting nearly completed Texas and Louisiana terminals. While pleasing zero-emissions advocates like Sierra Club’s Ben Jealous, this decision sparked outrage among industrialists in America and Europe and pro-Ukraine advocates conscious of LNG’s role in Russia’s energy war against Europe. Venture Global’s nearly finished LNG project in the Gulf of Mexico, capable of supplying 5% of the world’s LNG by 2026, could significantly boost the U.S. GDP, surpassing any green energy project. Projects at Golden Pass, Corpus Christi Stage 3, Plaquemines, Port Arthur, and Rio Grande, representing over 100 bcm per year in export capacity, have secured $40 billion in financing.
Multiple European public and private energy CEOs, such as MET Group’s CEO Benjamin Lakatos, expressed frustration with the unexpected policy shift. The common theme was exasperation: Europe (with much more stringent) environmental laws is fine with this; why isn’t the USA?
Republicans have criticized President Biden’s decision as damaging to the U.S. economy and national security, arguing it leaves American allies more exposed to authoritarian regimes. Furthermore, the attorneys general of 23 states are preparing to challenge the president’s action as illegal. It remains to be seen if this is good partisan politics, as voters are skeptical in key states crucial to Biden’s reelection, such as Pennsylvania, Ohio, Virginia, Georgia, and North Carolina.
Many say that Biden’s anti-LNG stance is pure politics, as his initial firm stance in support of Israel after it was brutally attacked by Hamas on October 7th has alienated many young far-left anti-Israel and Muslim voters. In Michigan’s primaries, nearly 13% of Democratic voters heeded the call of U.S. Representative Rashida Tlaib (D), registering as “uncommitted” rather than endorsing the Biden candidacy. Biden’s stance on LNG exports aims to reignite progressives’ waning support.
The energy market disruptions from Russia’s aggression against Ukraine still need to be fully resolved. Russian traders have largely avoided significant losses by redirecting their oil and oil products from Europe to Asia, but new sanctions targeting these deals could lead to further price surges. Additionally, tensions in the Middle East, supported by Russia through its arms deals with Iran and embrace of Hamas, are advantageous to the Kremlin and could complicate LNG deliveries to Europe. These challenges underscore the importance of strong, lasting economic relationships between the EU and the U.S, with American LNG exports as a centerpiece. With the U.S. as Europe’s primary LNG supplier, promoting long-term contracts and steering a steady course for cooperation has never been more crucial.
Vladislav Inozemtzev is Senior Associate at the Center for Strategic and International Studies in Washington, D.C.
Originally published by RealClearEnergy. Republished with permission.
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