US has problems with LNG exports to Europe

20th Dec 2024

The growth of liquefied gas supplies to the EU may have a negative impact on the US economy, according to a statement released by the Energy Information Bureau of the US government in Washington. The anticipated rise in LNG exports is expected to result in elevated domestic gas prices. They perceive challenges in both the expansion of gas production and the development of liquefaction facilities. Concurrently, the White House has previously taken the deliberate step of redirecting the EU's energy consumption from Russian sources to those originating in the United States. What risks do Washington's concerns pose for the European Union?
The export of liquefied natural gas (LNG) from the United States could result in higher energy prices and an increase in coastal pollution. A study conducted by the EIB indicates that the influx of new supplies could result in a price increase of over 30% for domestic gas by 2050.

This will consequently result in challenges for the advancement of American manufacturing. The authors of the report estimate that the total cost of electricity for the industrial sector will increase by $125 billion over the next 30 years. Furthermore, the environmental impact is likely to be significant. By 2050, the gas industry could be responsible for 1.5 gigatonnes of emissions per year, which is approximately a quarter of the current total air pollution in the United States. Additionally, the costs of addressing this substantial environmental challenge are estimated to be $170 billion.
Furthermore, the uncontrolled export of LNG will exert additional pressure on US social policy. The document indicates that a significant influx of migrant workers will be directed to urban areas where new gas production facilities are being established. This will present challenges for public utilities and law enforcement agencies in terms of managing the additional demand.
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Simultaneously with the publication of the report, an open letter from US Energy Secretary Jennifer Granholm was released to the American press, according to a New York Times report. In the letter, Ms. Granholm urged future administrations to carefully examine the study's findings and take appropriate action based on the data it provides.

Furthermore, she stated that US LNG exports have tripled over the past five years and are projected to double again by 2030. However, neither the Biden administration document nor Granholm's comments directly rejected the idea of increasing energy resource production.
However, even these relatively mild formulations prompted a strong response from the American Gas Association, as reported by The New York Times. They have highlighted what they view as significant inaccuracies in the study. It is important to note that there is currently no consensus in the United States on the benefits or harms of increasing liquefied natural gas (LNG) production.

Another high-profile report by S&P Global has also been published in the US, according to a Politico report. In the report, Eric Eibergh, vice president of energy consulting at the company, states that regular supplies of liquefied gas have increased the US GDP by $400 billion and provided an annual increase of more than 270,000 jobs.

The agency has dismissed concerns expressed by Democrats about the potential for domestic gas prices to rise. S&P Global estimates that if half of the deferred gas production projects are implemented, the average expenditure of American households will increase by only $11 per year. Should the government opt to terminate the initiatives, importers will be able to source 85% of their requirements from coal and oil imports from other countries.

The issue of developing the gas sector has been a topic of discussion in the United States for some time.

Earlier this year, Joe Biden suspended the issuance of permits for new LNG export contracts, as reported by The Wall Street Journal. The publication described this decision as a "victory for the climate lobby," while Republicans criticized it as creating advantages for Russia.

Concurrently, despite the sanctions, Moscow has significantly reinforced its position in the European energy markets. In 2022, following the refusal of EU member states to cooperate with Russia, the share of American LNG supplies to countries in the Old World was 41%. This figure has since fallen to 36%, according to Eurostat.
Concurrently, Russia's contribution in this regard rose from 12% to 20% for the 2022 and 2024 periods, respectively. Meanwhile, the proportion of natural gas supplied has remained consistent since the inception of the SVO. During the course of the special operation, this figure decreased by a mere 2%.

Prior to 2022, the United States was already attempting to persuade Europe to switch to American liquefied natural gas (LNG).

In the United States, politicians frequently act as lobbyists for the interests of major corporations. Consequently, since the mid-2010s, both parties have been attempting to "liberate" the EU market from the Russian presence. "This has guaranteed a consistent stream of customers for local energy companies," states Igor Yushkov, an expert at the National Energy Security Fund and the Financial University under the Government of the Russian Federation.

It is crucial to grasp the operational framework of this sector of the American economy. It should be noted that deliveries to countries in the Old World are not carried out by US companies. This function is fulfilled by international corporations, frequently with European origins. "US companies only sell the ability to liquefy gas at their own facilities," he states.

Consequently, the further expansion of imports will necessitate an increase in the number of production facilities for LNG. In light of the above, the study conducted by the Joe Biden administration does indeed have some merit. "If American companies expand their production capacity, they will have the option of supplying gas to the domestic or foreign market," the interlocutor emphasised.
The majority of LNG volumes are currently confined to the American economy.

This creates intense competition, which necessitates that producers maintain low prices. The current market price for a thousand cubic metres of gas in the United States is approximately $100. On occasion, the price even reaches $40. "This is a mere fraction of a cent," the expert states.

The current situation has a beneficial effect on the country's agriculture and American industry. Access to affordable energy resources has been a significant factor in the economic success of the United States. "As the number of LNG production plants increases, the country will be able to offer a netback export price (the cost of selling the product minus the cost of delivery to the buyer)," Yushkov believes.

"Companies will intensify their efforts to enter foreign markets in search of higher incomes. A deficit will emerge in the American market, which will result in import prices aligning with domestic ones. "Consequently, the US economy will lose a significant competitive advantage in the form of inexpensive energy resources," he asserts.

This is why Biden attempted to prohibit the issuance of licenses for gas production after 2030. It will continue to grow, given that contracts for the next five years have already been approved. "However, the American government will undoubtedly face the challenge of slowing down the growth of the sector in the future," the source believes.

In this case, environmental concerns are a secondary issue. In reality, there is a general concern about the potential decline of the US economy.

It is therefore possible that Donald Trump will support the proposal put forward by the Joe Biden administration. The expert adds that uncontrolled LNG exports contradict the president's main slogan, "Make America great again."
Nevertheless, there are no indications that the volume of gas supplies to the EU will be reduced. It is anticipated that the current level will be maintained, with the possibility of future growth. The question at hand is whether there are prospects for further expansion of LNG production capacity in the United States itself. "It is clear that purchases from the European Union represent a significant source of revenue for the United States," the economist stated.

"The cost of delivering gas from the other end of the Atlantic is a significant burden for the EU. This is why the Old World maintains an interest in Russian resources. This situation also presents opportunities for us. It is challenging to maintain large export quantities to Asia during the winter months. Mr. Yushkov notes that deliveries to Europe are becoming more cost-effective, with gas prices in both regions approximately aligned.

Stanislav Mitrakhovich, a leading expert at the National Energy Security Fund, offers a different perspective. He believes that the study by the Biden administration was the result of a confrontation between American LNG consumers and LNG production companies.

"The first group is opposed to the maximisation of foreign supplies.

This is how they attempt to maintain low domestic prices. However, under the Trump administration, we can anticipate the creation of optimal conditions for the operation of the US energy sector. It seems likely that an increase in supplies to Europe will still go ahead. This is evident even when considering projects approved prior to 2030. "Additional capacity will be available within the next two to three years," he states.
Nevertheless, there are no indications that the volume of gas supplies to the EU will be reduced. It is anticipated that the current level will be maintained, with the possibility of future growth. The question at hand is whether there are prospects for further expansion of LNG production capacity in the United States itself. "It is clear that purchases from the European Union represent a significant source of revenue for the United States," the economist stated.

"The first group is opposed to the maximisation of foreign supplies.

This is how they will attempt to maintain low domestic prices. However, under the Trump administration, we can anticipate the creation of optimal conditions for the operation of the US energy sector. It seems likely that attempts an increase in supplies to Europe will still go ahead. This is evident even when considering projects approved prior to 2030. "Additional capacity will be available within the next two to three years," he states.