REPowerEU and the US-EU LNG Deal: The Best Way Forward?

energy REPowerEU

By: Carolina Ghisoni

Photo credits: Paul Alain Hunt via Unsplash

The EU after Russia’s invasion of Ukraine: REPowerEU and the EU-US LNG deal

More than eight months have passed since Russia invaded Ukraine. Besides extraordinary humanitarian costs, the war has also jeopardised long-standing global energy security trends. Most notably, it exposed the problematic nature of the EU’s import dependency on Russia’s natural gas, which accounted for 40% of the EU’s natural gas imports in 2021. Since February 2022, the EU and the international community have imposed various sanctions aimed at curtailing the Kremlin’s main source of revenue: oil and gas exports. These punitive actions triggered a global surge in energy prices and further exposed the EU to Russia’s energy manipulations

These action-reaction dynamics were a wake-up call for the EU to concretise its promises for strategic autonomy. Last May, the European Commission launched the REPowerEU Plan. Aimed at rapidly reducing the EU’s overreliance on Russian fossil fuels, this programme entailed the diversification of energy suppliers and accelerated the roll-out of renewable energy. As part of REPowerEU, the US-EU liquified natural gas (LNG) deal will play a fundamental role in the process of energy source diversification. The EU-US LNG deal – signed in March 2022 – saw an increase in American LNG exports to the EU, totalling an extra 15 billion cubic meters (bcm) in 2022 and the commitment of 50 billion more annually until 2030. In 2021, the US LNG exports to the EU already equalled 22 bcm. Furthermore, US President Biden and President of the European Commission von der Leyen agreed to work closely to foster a swifter transition to renewables with respect to climate objectives. As promising as it sounds, the US-EU LNG agreement could have controversial consequences. It compromises the pursuit of renewables to prioritise immediate energy security. 

Why the US?

The increasingly dominant role of the United States in the contemporary natural gas market seems to have been a deciding factor for the EU’s choice to negotiate a deal with the Biden administration, rather than revert to the traditional markets. In the 2010s, the bulk of global energy production began to shift away from long-established energy suppliers, originally located in the Middle East and Eurasia. This shift allowed the US to emerge as a new oil and gas production leader. The main driver of this transformation – known as “the shale revolution” – was a specific drilling technology called fracking. The combination of precise horizontal drilling into shale pockets and hydraulic fracturing, whereby high-pressure fluid is injected into the rock to create fractures and extract the fluid to collect gas and oil, has made the US the world’s biggest LNG producer and exporter of the last decade. Commonly considered a breakthrough technology, such extraction practice is widely criticised by environmentalists and scientists for the danger it poses. Amid these critiques, it comes as no surprise that the US-EU LNG deal has also been challenged, in the context of Biden’s climate agenda and REPowerEU’s claims to support climate action.

Critiques of the EU-US LNG deal

Climate groups maintain that the US-EU LNG deal throws Biden’s climate agenda and the REPowerEU plan under the bus for a variety of reasons. First, any form of natural gas contributes to climate change. At any point in its lifecycle, from extraction to liquefaction to transportation, LNG releases methane. As a greenhouse gas, methane is 84 times more powerful than carbon dioxide in the first twenty years after it is released into the atmosphere. Consequently, LNG is responsible for twice as many greenhouse gas emissions as ordinary natural gas, making LNG a very harmful form of natural gas for the environment.

Second, LNG extraction and liquefaction processes are extremely dangerous and polluting. As innovative as they might be, the established fracking technique releases chemicals that can cause major health issues. Among them, benzene and its deriving volatile organic compounds can provoke blood disorders, asthma, heart and lung diseases, and even cancer. The process of liquefaction is perilous as well, especially due to the release of mercury into the environment. Exposure to such liquefaction by-products can lead to lifelong disabilities affecting cognitive thinking, attention span, memory loss, and language skills.  

Third, due to the volatility and explosive nature of LNG, natural gas plants risk fire explosions. As a full LNG tanker carries an amount of energy equal to 55 atomic bombs, they pose a consistent threat, especially when at ports nearby populated areas. During their time at sea, LNG tankers are also exposed to extreme weather events which create potentially hazardous situations. Furthermore, as liquefaction and export facilities are mostly built in lower socio-economic areas, climate justice activists have highlighted the disproportionately detrimental effects these sites have on minorities living in the area. The negative health and environment related consequences of the LNG deal are at odds with Biden’s promise of a 100% clean energy economy and net-zero emissions by 2050. 

Experts are also concerned with the real feasibility of the US-EU LNG plan. The US produces 96.7 billion cubic feet per day (bcfd) and is capable of supercooling about 12.7 bcfd of LNG for transportation. At the moment, all US-based LNG plants are exporting at full capacity. This means that independent from natural gas price fluctuations in the global market, the US currently cannot produce more LNG. As for the US-EU LNG deal, the US could increase its natural gas shipments to the EU, but only via indirect means. For the sufficient reallocation of gas supplies to the EU, the US would need to negotiate LNG infrastructure contracts with non-European parties. While technically feasible, rerouting LNG shipments to Europe to meet its higher energy demands signifies being tied up in long-term deals with other third parties. And even then, these deals might not be enough for the US to meet the EU’s high energy needs

Furthermore, investing in an overseas LNG infrastructure to support EU energy necessities could lead the US to finance projects of a limited life span. A new wave of energy infrastructure technology that the US could fund is supposed to emerge in 2024 at the earliest. By then, the prices for renewable energy technologies are expected to decrease in comparison to fossil fuel facilities which are predicted to be worth €23 billion. In turn, this means that LNG locations abroad might have to be shut down before they could even meet the EU’s energy needs. Hence, long-term investment in LNG facilities could create unused and abandoned assets, thereby polluting the environment. Once again, this would defeat the purpose of Biden’s overarching climate agenda and the REPowerEU plan.

Contrary to what many natural gas supporters claim, increasing long-term LNG exports does not guarantee energy security for the EU. It could lead to an unbridgeable EU import dependency on the United States LNG assets – just as it occurred with Russian energy sources. The US-EU deal could also have detrimental effects on the US’s relationship with historical allies, most notably South Korea, Japan, and Taiwan, who also happen to be LNG buyers and international energy market stabilisers. For the US to divert LNG to such intermediaries would mean prolonging their exposure to international market price shocks. This would defeat the multiple purposes of the LNG deal and REPowerEU, namely the diversification of energy sources and the stability of the  global energy system. The combination of climate- and feasibility-related factors makes the US-EU LNG deal a high-risk gamble for all parties involved.

Why was the US-EU LNG deal signed then? 

To understand the reasoning behind the US-EU LNG agreement, it is important to not only consider the deal’s pitfalls but also the (supra-)national interests that facilitated it. As the Russian invasion of Ukraine exposed Europe’s long-enduring import dependency on Russian energy sources, Brussels’ imminent security goals were also reshaped. Energy transition and climate security, once initial priorities in the European agenda, were surpassed by energy security. It is in this context that the EU rushed to sign the LNG deal with the US. 

On their part, the White House also entered this agreement with specific interests in mind. The US needed the LNG deal with the EU to compete against Russia and the Asian bloc for the final say in the international energy market and the global transition to renewables. Not only did the Kremlin’s unjustified actions against Ukraine cause a global energy shock, but they further tightened LNG markets last summer. In the face of an already constrained global natural gas sector, Russia increased gas supply uncertainty by nationalising LNG terminals that supplied natural gas to the United States’ Asian allies and trading partners. As Japan and South Korea could potentially divert part of their natural gas supply to support Europe’s energy needs, the US needed the LNG deal to ultimately prevail against Russia

Simultaneously, since February 2022, Russia has been further expanding its area of influence in Asia by negotiating energy deals with China and India. Since then, the Kremlin has become the most important source of fossil fuel exports for Peking and New Delhi. The formation of this Asian bloc – with China and India as consumers and Russia as supplier – will also have massive consequences on the international energy market and the future of a swift transition to renewables. As the world’s largest and third biggest energy consumers and net importers of oil, China’s and India’s energy behaviour really matters in countering climate change. Nonetheless, agreeing with the West to a total green energy shift is not a Chinese or Indian priority. Currently undergoing a process of industrialisation, both developing countries need their new Russian connection to achieve economic expansion. As a response to this two-front offense, the US entered the LNG deal with the EU. In turn, these developments in energy geopolitics have resulted in a willingness from both the US and the EU to pursue their immediate needs at the cost of environmental security. 

Are there any other alternatives to the LNG deal?

The climate- and feasibility-related shortcomings of the LNG deal encouraged experts to propose for the EU to seek a cleaner path toward energy security. This would involve LNG importing countries to couple fossil fuels with carbon capture, utilisation, and storage technologies (CCUS) as a way to decrease long-term commitment to polluting fossil fuel projects. However, this would only be a temporary solution for European countries to achieve both their energy security needs and climate goals. As global renewable-based power generation increases and the cost of storing energy decreases, fossil gas plants are expected to only be used when the energy grid is overloaded. Environmentalists see solar photovoltaic technology (PV), paired with energy storage, at the forefront in this transition to renewables. They claim that this combination is already cost-competitive with natural gas plants and that LNG is running out of time.

Conclusion

Russia’s invasion of Ukraine offered the EU a concrete impetus to reduce its reliance on Russian natural gas. Hence, the REPowerEU plan for energy supply diversification was implemented, comprising the pivotal energy cooperation stipulated by the US-EU LNG deal. While REPowerEU promises to ramp up US gas exports to the EU to meet Brussels’ energy needs, the agreement comes with various pitfalls. Detrimental to Biden’s climate agenda and REPowerEU itself, this energy supply diversification plan appears to be at odds with the overarching goal of the transition towards sustainable energy. Furthermore, facing possible economic and political obstacles, this Atlantic energy partnership seems unfeasible. Nonetheless, both signatory parties have resorted to this agreement in the hopes of reaching their immediate goals – energy security for the EU and the final say in the international energy market and ongoing global transition to renewables for the US. As desperate times call for desperate measures, both parties will continue to give priority to their short-term national agendas, despite the ongoing climate crisis. This, at least, will not change until European energy independence and the curtailing of Russia’s global energy influence take place. 

Photo credits: Paul-Alain Hunt via Unsplash: https://unsplash.com/it/foto/WVG7oz4NTsU

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