Russia’s invasion of Ukraine has tested international agreements and accords, while also catalyzing the creation of new relationships. A new agreement between the United States and the European Commission (EC) could have a major impact on the Russian natural gas industry for decades - if it’s feasible.
Last week, President Biden revealed that the US will be working in tandem with the EC to aid Europe’s desire to wean itself from Russian natural gas imports. To do this, the US and EC have created the Task Force for Energy Security, that “will work to ensure energy security for Ukraine and the EU … while supporting the EU’s goal to end dependence on Russian fossil fuels.” Efforts of the newly created task force will focus on two stated goals:
1. “Diversifying liquefied natural gas (LNG) supplies in alignment with climate objectives, and;
2. Reducing demand for natural gas”
Both parties have agreed to take certain measures to cut greenhouse gas emissions and intensity from energy-related operations, particularly in LNG infrastructure, and promote clean energy projects within their respective territories.
However, the first stated goal, diversifying LNG supplies, is the real substance of the partnership. The diversification of European LNG supplies actually involves divorcing Europe from Russian fuels. Currently, the European Union (EU) imports 40 percent of its natural gas supplies from Russia. Now, with the new agreement in place, the US will fill part of the Russian void in Europe, committing to increase natural gas exports to the EU market by 15 billion cubic feet (Bcf) by the end of 2022. The commitment stretches further, as the US has pledged to make an additional 50 Bcf of gas exports available annually to the EU market. The long-term agreement would have mutually beneficial effects: boosting American oil and gas operations and LNG exports while the EC receives relative energy security and can decouple from Russia.
There are issues with the plan, as many environmental organizations and those within the gas industry have identified. Environmental organizations have taken aim at this partnership, with many arguing that natural gas, and all other fossil fuels, should be swiftly phased out, as well as noting the potential impact increased use of natural gas would have on both the US and Europe’s climate goals. In a statement to Forbes, Kelly Sheehan senior director at the Sierra Club said “We should be rapidly transitioning to affordable clean energy, not doubling down on fossil fuels”.
Many in the gas industry support the plan but question its practicality and feasibility. Though American natural gas production and exports have both increased in the last decade, the US is currently not equipped to handle LNG exports of that magnitude. To meet the 50 Bcf/year promise, the US would need to invest billions into the construction of LNG export facilities, gas pipelines, and associated infrastructure, as well as ramp up gas domestic production.
Dan Weaver, president and executive director of the Pennsylvania Independent Oil & Gas Association (PIOGA), stated in a recent Center for Energy Policy & Management webinar that building LNG exporting capacity and ramping up gas production is “not instantaneous.” This argument mirrors others in the industry, such as Tellurian’s executive chairman Chairf Souki, who told the New York Times that “I have no idea how they are going to do this” when discussing the agreement.