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9th Dec 2022

EU's LNG shift may lock in gas use, experts warn

  • The EU's reorientation towards other sources of energy — mainly LNG — will profoundly affect gas and energy infrastructure around the globe (Photo: EUobserver)
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Last week, the US pledged to increase imports of liquified natural gas (LNG) to the European Union — in a bid to help the bloc reduce its dependence on Russian gas.

The aim is to help the EU acquire 15bn cubic metres of LNG before the end of the year and to increase shipments to 50bn cubic metres annually until 2030 — one-third of the volume the EU currently still imports from Russia.

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Even before the political agreement, buyers like Shell and BP had already shifted away from Russian gas.

"We're witnessing the start of a demand destruction event of Russian gas in Europe," energy expert Clark Derry told EUobserver.

The EU's reorientation towards other sources of energy — mainly LNG — will profoundly affect gas and energy infrastructure around the globe.

And some experts are warning a shift to LNG is bad news for the environment.

Risk of a lock-in

Raphael Hanoteaux, an expert at energy think tank E3G, said the world is at risk of "locking itself into LNG for decades."

After years of low investment, a whole slew of written-off gas projects are actively being discussed by governments and investors around the globe.

Germany has already proposed building new terminals to receive LNG and has secured three regasification vessels that can float offshore. The German government announced the first offshore terminal is expected to be deployed this winter.

On the other side of the Atlantic, the US has approved 14 new LNG terminals in recent months to meet the global hunger for LNG. Currently, there are only six terminals in the US.

This does not mean they will all be built, because financiers will still have to be found. But according to one enthusiastic US gas executive investors are already "lining up."

It is still too early to tell if this will in fact happen. Investors in these billion-euro projects will need assurances that a transition to wind and solar energy will not render these fossil-fuel assets obsolete in a decade.

"They will only be financed if there are enough buyers to ensure 20 years' worth of contracts," Derry said.

But increased European demand may make such projects more feasible, and much will depend on the success of the European shift to green energy.

Green goals

The EU has pledged a move away from Russian fossil fuels — with a joint plan aiming to replace two-thirds of Russian gas before the end of the year, with most of the plans announced aimed at renewable energy, energy saving or the renovation of gas inefficient homes.

This is bad news for gas producers, but replacement energy will need to be deployed fast, and there are reasons to doubt that it will. Gerben Hiemstra, an economist at the Dutch bank ING, responded sceptically to the plan.

"Renewables get too much attention considering their limited potential to replace gas for heating purposes," he wrote in an analysis.

"Much will depend on the success and speed of political decision making…and LNG will need to do most of the work [of heating homes]."

European failure to build suitable renewable replacements for gas and heating, could drive demand on an already tight global LNG market in the short or even medium term.

"Wealthy Europe and wealthy Asia will have to fight it out over the limited pot of LNG," Derry said.

This will drive up prices. And continued EU dependency on LNG may persuade producers to invest billions in new gas projects, threatening EU climate goals.

"It's really a horse race," Derry said.

Fracked gas more polluting than coal

Shortly after the announcement, a commission spokesman described the EU-US LNG agreement as a "clean energy deal."

Gas emits less carbon dioxide than other fossil fuels, which means that in some cases, states can use it to replace coal or oil as a transition fuel.

But not all-natural gas is produced in the same way. The US, the world's biggest gas producer, extracts two-thirds of its natural gas by pumping a mixture of water, sand and chemicals into rock at high pressure.

This process is called fracking and it is notoriously polluting because it releases a lot of methane into the atmosphere — a planet-warming gas many times more potent than carbon dioxide.

Methane leakage is notoriously hard to measure. But new research published by Stanford University has now made clear methane leakage is six times higher than previously thought — a rate that would make US natural gas more polluting than the Russian gas it replaces. It may even be dirtier than coal.

This is before the energy-intensive process of chilling it, putting it on a boat to Europe, regasifying it and piping it to people's homes.

"Europe will need gas," Hanoteaux said. "But importing American LNG cannot be a long-term solution."

More US gas may explode prices in Europe, experts warn

Washington will increase supply of liquefied natural gas before the end of the year, US president Joe Biden and EU Commission president Ursula von der Leyen announced on Friday, amid warnings that such a move could push prices even higher.

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