Energy Crisis

Biden may promise more LNG to EU but US lacks spare capacity

Biden promise more LNG EU US lacks spare capacity

Photo: White House / US government works

Published

March 24, 2022

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Published:

March 24, 2022

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According to a news report, United States President Joe Biden will announce a major initiative for direct deliveries of LNG to Europe to help it replace Russian gas. The market for the fuel is tied in long-term contracts, so it is unclear how the government in Washington can get companies on board.

US Secretary of Energy Jennifer Granholm said her country is “exporting every molecule of liquefied natural gas” (LNG) that it can to help Europe. Russia’s invasion of Ukraine prompted the European Union to declare it would urgently work on replacing Russian gas, oil and coal. However, the global market is already tight and even the domestic infrastructure can’t switch to other sources without massive investment, which would take years.

“The Biden administration is urging the US oil and gas industry to ramp up production to meet demand and to help lower prices for working families everywhere…  We have to do everything in our power to address the immediate needs of our people, but the truth is, only clean energy offers us a viable medium- and long-term solution to these kinds of challenges,” Granholm stated.

US to urge other LNG producers to assist Europe

The energy secretary said the government would also ask other countries that produce LNG to ramp up shipments to Europe. The US is issuing permits for planned domestic LNG terminals and producers to export to Europe, Granholm revealed. She claimed one terminal would come online this year and that another one, also under construction, should be finished next year.

Granholm said one LNG terminal would be finished in the US this year and another in 2023

US President Joe Biden is arriving today in Brussels for a summit of the North Atlantic Treaty Organization (NATO) and a meeting of the Group of Seven – G7. Washington Post learned from unnamed US officials that he would announce a major initiative to direct shipments of liquefied natural gas to Europe.

Such a shift could have an impact long after the war is over, the article adds. Biden is also expected to announce more sanctions against Russia, according to the report.

Diverting LNG to Europe comes at expense of others

“I struggle with the mechanics of this one. There isn’t a single extra drop of spare capacity of liquefied natural gas in the world. Europe wants more but much of the world’s supply is tied up in long-term contracts all over the world. So any LNG that’s redirected to Europe comes at the expense of somewhere else, likely Asia. There’s no scope for extra US LNG before at least 2025,”  ForexLive’s Chief Currency Analyst and Managing Editor Adam Button said.

The world’s LNG supply is tied up in long-term contracts

The European Commission issued a legislative proposal requiring member states to ensure that their underground gas storage is filled up to at least 80% of capacity by November 1. The level would rise to 90% for the following years, it said. The initial plan was to impose an obligation to restock to at least 90% by October 1.

Kremlin threatens to demand payments for gas in rubles

Russian President Vladimir Putin said the Kremlin would soon require “unfriendly” countries to pay for its gas in rubles, which sent shockwaves across the market and propped up his country’s currency.

German Vice-Chancellor and Minister for Economic Affairs and Climate Action Robert Habeck was quick to respond that such a decision would be a breach of contract. The top official has just come back from the Middle East, where he secured several contracts for hydrogen deliveries from the United Arab Emirates.

Germany counts on hydrogen to help replace Russian gas

The first shipment of blue hydrogen from the UAE to Germany is expected this year, Habeck said. It is the kind of hydrogen that is produced from gas, but with carbon emissions from the process captured and stored or sometimes used for another industrial purpose. Otherwise it would be called gray hydrogen. Green hydrogen is made by separating water’s hydrogen atoms from oxygen via electrolysis, powered by renewable sources.

The green hydrogen industry is getting a break to become competitive as fossil gas costs soared

Hydrogen can complement gas in old pipelines and replace it for many purposes if the adequate infrastructure is available. Green hydrogen is still uncompetitive, but Bloomberg New Energy Finance (BNEF) and Rystad Energy claimed in new reports that the unprecedented spike in gas prices is a break for the budding industry. They highlighted recent examples where green hydrogen became cheaper than its alternatives.

If gas is expensive, then so is blue and gray hydrogen and the ammonia produced from it – a key commodity for the production of fertilizer, which is currently selling at record high prices. There are also emission or carbon capture costs for fossil gas. On the other hand, green hydrogen doesn’t depend on fuel costs but only on sunshine and wind.

In other news, Italy, Germany, Hungary, Austria and Bulgaria all rejected calls to impose sanctions on Russia in the energy sector.

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