U.S., EU strike LNG deal as Europe seeks to cut Russian gas

[March 25, 2022]  By Jarrett Renshaw, Vera Eckert and Joseph Nasr

BRUSSELS/BERLIN (Reuters) -The United States will work to supply 15 billion cubic metres (bcm) of liquefied natural gas (LNG) to the European Union this year to help wean it off Russian gas supplies, the transatlantic partners said on Friday.

The EU is aiming to cut its dependency on Russian gas by two-thirds this year and end all Russian fossil fuel imports by 2027 due to Russia's invasion of Ukraine. Russia supplies around 40% of Europe's gas needs.

Concerns over security of supply were reinforced this week after Russia ordered the switch of gas contract payments to roubles, raising the risk of a supply squeeze and even higher prices.

U.S. LNG plants are producing at full capacity and analysts say most of any additional U.S. gas sent to Europe would have to come from exports that would have gone elsewhere and already high European gas prices would have to rise further to attract those cargoes to the 27-nation bloc.

LNG under contract cannot be easily redirected.

"It normally takes two to three years to build a new production facility, so this deal may be more about the re-direction of existing supplies than new capacity," said Alex Froley, gas and LNG analyst at ICIS.

Senior U.S. administration officials did not specify what amount or percentage of the extra LNG supply would come from the United States.

Even if the 15 bcm is achievable, "it still falls well short of replacing Russian gas imports, which amounted to around 155 bcm in 2021," analysts at ING Bank said.

GERMAN RELIANCE ON RUSSIA

U.S. President Joe Biden and European Commission President Ursula von der Leyen also announced a plan to form a task force to reduce Europe's reliance on Russian fossil fuels.

The Commission will also work with EU countries to ensure they are able to receive about 50 bcm of additional LNG until at least 2030, the factsheet provided by the White House said.

It was unclear whether it referred to amounts additional to last year's 22 bcm of U.S. exports to the EU.

The Astora natural gas depot, which is the largest natural gas storage in Western Europe, is pictured in Rehden, Germany, March 16, 2022. REUTERS/Fabian Bimmer

The EU has already stepped up efforts to secure more LNG after talks with supplier countries, resulting in record deliveries of 10 bcm of LNG in more than 120 vessels in January.

Meanwhile, Germany, the EU's biggest importer of Russian gas, said it has made "significant progress" towards reducing its exposure to imports of Russian gas, oil and coal.

However, Economy Minister Robert Habeck also said it could take until the summer of 2024 for Europe's largest economy to wean itself off of Russian gas.

German utilities on Thursday said their country needed an early warning system to tackle gas shortages as Putin's demand for gas payments in roubles left companies and EU nations scrambling to understand the ramifications.

Some countries, such as Italy, said they would continue to pay in euros. The CEO of Poland's PGNiG, said the company - which has a contract with Gazprom until the end of this year - could not simply switch to paying in roubles.

Russia's demand for payment in roubles for gas still needs to be backed by a concrete mechanism.

A spokesman for Germany's Uniper said on Friday: "We have not received any official notification or request to process the settlement in roubles."
 

The German economy minister said the government will consult with its partners about Putin's demand for payment in roubles.

(Reporting by Jarrett Renshaw in Brussels, Joseph Nasr in Berlin, Vera Eckert in Frankfurt, Nina Chestney and Marwa Rashad in London; writing by Philip Blenkinsop and Nina Chestney; editing by Barbara Lewis and Jason Neely)

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