Climate Change

U.S. and EU Create Joint Task Force to Increase Natural Gas Imports and Reduce Dependence on Russian Energy

On March 25, 2022, President Biden announced the creation of a joint task force with the European Union ("EU") to increase natural gas imports to reduce Europe's dependence on Russian energy. President Biden agreed that the United States will work with international partners to deliver at least 15 bcm of additional liquefied natural gas ("LNG") volumes to the EU market, with an expectation to increase the amount annually. Such natural gas supply commitments appear to pit the Biden administration's stated plans to cut fossil fuel use as part of its larger climate change strategy (as discussed in further detail in Jones Day's prior Alert here) against the strategic need to provide increased natural gas support to the EU. However, for reasons that will be explored here, the medium and long-term impact of these commitments on fossil fuel use remains uncertain.

Notwithstanding the fact that President Biden scheduled the United States to increase the amount of LNG delivered annually, the United States has already maxed out its export capabilities and will not, in the near term, be able to significantly increase exports beyond those already planned. Prior to President Biden's announcement, United States LNG exporters had already begun diverting Asia-bound shipments to Europe. So far in 2022, the United States has exported almost 75% of its LNG to Europe, a 41% increase from all of 2021. In addition, all seven U.S.-based LNG export facilities are currently operating at capacity (liquefying about 12.7 bcfd of natural gas).

Additionally, the planned increase in LNG imports poses a problem for Europe—namely, insufficient import capacity. Running up to the Russia/Ukraine conflict, certain European countries may have been complacent in LNG import facility investment, in part due to the option to purchase cheaper gas from Russia via pipeline. Further, Europe's LNG terminals, specifically the terminals in the northwest, are already at full capacity, supporting Britain, France, and Germany. Ultimately, any short-term plans for natural gas supply to the EU will be capped by the existing capacity of its 26 import terminals and limited by the infrastructure to bring the natural gas to end users—the construction of LNG export/import facilities and associated infrastructure can take several years and billions of dollars.

Looking to the long-term, notwithstanding the reported rush to endorse new LNG import facility projects (e.g., Germany, which currently does not have any LNG import terminals, recently contracted with Shell to build two new facilities), there are various factors that may impede development. For instance, some believe that difficulty of securing financing for new LNG terminals may be an issue. Italy, Belgium, Poland, Germany, Cyprus, and Greece have import terminals in the planning stages or being built but cannot move forward until securing private investment. Investors may be hesitant to undertake this long and expensive investment given the uncertainty—for instance, the 2020 COVID-19-induced price crash in natural gas remains fresh, and future long-term climate policies could destroy natural gas demand and their return on investment.

Given the above, while the current situation in the Ukraine and the need to establish "Russia-free" energy security for Europe will require substantial support for Europe's demand for fossil fuels in the short term, the impact of this support on the administrations' hydrocarbon-related medium and long-term climate goals is uncertain. For additional information, visit: The White House, FACT SHEET: United States and European Commission Announce Task Force to Reduce Europe's Dependence on Russian Fossil Fuels.

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