Biden faces a climate dilemma over LNG exports to Europe

Biden faces a climate dilemma over LNG exports to Europe

The advent of hydraulic fracturing, or “fracking,” facilitated the U.S.’s transformation into an oil and gas superpower. Horizontal drilling combined with hydraulic fracturing of bedrock allowed drillers to extract oil and gas trapped in shale formations. By 2011, booming shale production plays out pushed the USA over Russia as the largest producer of natural gas in the world.

The US set annual records for natural gas production in 2018 and again in 2019, before production fell slightly in 2020 amid the economic slowdown caused by Covid-19. As production has increased, so have exports – to Mexico by pipeline and overseas by tanker after conversion to liquefied natural gas (LNG).

The US became a net exporter of LNG in 2016 and now supplies more than 30 countries. LNG exports averaged five billion cubic meters per day (Bcf/d) in 2019, and exporters added 2.7 LNG/d of new export capacity in 2020. LNG exports hit a record 9 .4 billion cubic meters/day in November 2020, or 93% of the US peak. export capacity, says the USA Energy Information Administration (EIA). After additional liquefaction units come online this year, peak US LNG export capacity will reach 10.8 billion cubic meters per day.

US shale gas producers are facing declining domestic demand. President Joe Biden has pledged to transition to carbon-free electricity by 2035. Cheap renewable electricity is already starting to reduce the share of natural gas in the US energy mix. Natural gas will account for 34% of US electricity generation in 2022, down from 39% in 2020. In parallel, non-hydro renewables will increase their share from 12% to 16%, the EIA says. If U.S. producers can’t sell their excess gas at home, they will look to offload it to Asia, Europe or elsewhere.

Although there are pipelines for Russia to send its gas to Europe, American gas must be sent across the Atlantic by ship. European ports need special LNG facilities to receive it. Spain has the largest number of LNG import terminals, but other countries such as France and the UK are looking to build more. Rotterdam in the Netherlands, Europe’s largest port, has an LNG storage capacity of 180,000 m3 and plans to increase.

US oil and gas giants, as well as US politicians, have pushed for European countries to increase their capacity to receive LNG, seeing it as an energy security issue. Europe is a net importer of gas. The more LNG it buys from the US, the less dependent Europe will be on Russian gas.

Shutdown Nordstream 2

“It’s a big asset for the US because they have a lot (of LNG) and it’s much cheaper than probably anywhere else in the industrialized world,” says Lucio Miranda, president of ExportUSA, a consulting firm specializing in EU-US trade. . “The US is preparing more and more LNG export terminals; they are totally focused on export.”

The story continues

Miranda adds: “The Trump administration has put a policy factor on top of this commercial factor. When Rick Perry, the former US energy secretary, was speaking in Italy about importing US LNG, one of the questions was that Russian gas was cheaper. Perry said it doesn’t matter, we’ll match the price. So my feeling is that LNG will also be used as a tool for US foreign policy.”

Until 2018, the price of Russian gas imports was typically about 30-40% cheaper than US LNG, but increased competition between US LNG and Russian gas has driven down the price of both significantly over the past two years. US gas imports were a negligible proportion of European imports two years ago, but accounted for 6.7% in 2020 – and that figure is rising.

One of the big questions for Europe is whether the Biden administration will oppose the nearly completed Nord Stream 2 pipeline bringing Russian gas to Germany as fiercely as the Trump administration, which has launched sanctions against the project. The US says the pipeline will make Europe more dependent on Russian gas. In doing so, Washington has aligned itself with climate change campaigners, who oppose the pipeline because they say it would make the EU more dependent on gas. They want to see Russian gas replaced by renewables, not US LNG.

“At first there might be some similarities,” he says Jennifer Tollmann, senior policy analyst at climate think tank E3G. “A complete change in the US approach to gas and gas policy is not expected. I’m sure the US won’t stay keen on Nord Stream 2, but I wonder if sanctions will be the first tool the Biden administration uses. at.”

Fears of stranded assets

The future of EU-US LNG trade may also depend on what EU and US policymakers think is the place of gas in the energy transition. This is one fierce battle underway in Brussels, with Climate campaigners are fighting efforts to make gas count as a “transition fuel” to be used alongside renewables to help decarbonise the EU over the next two decades.

“There is still a substantial debate in the EU about gas and what its future should be,” says Wendel Trio, director of the campaign group Climate Action Network Europe. A number of people are convinced that gas is important and that LNG plants are necessary for the energy transition, while others are strongly opposed to this scenario, Trio adds.

The big worry is that any new infrastructure, be it pipelines or import terminals, will lock the EU into fossil gas for decades to come. This concern is more pronounced for LNG than for pipeline gas because during the pipeline process natural gas in the market is relatively simple, the LNG value chain is more complex. This is due to the relatively high energy (and carbon) intensity of natural gas liquefaction and the requirement that any contaminating CO2 be removed from the feed gas, it shows analysis by Wood Mackenzie energy consultancy.

(Keep up to date with Energy Monitor: subscribe to our weekly newsletter)

Industry associations in Europe such as Gas Naturally are pushing for new infrastructure, arguing that gas is less carbon intensive than other fossil fuels such as coal and oil and that this infrastructure could later be used for carbon-free gas, such as hydrogen. So far EU and US policy makers appear to be sympathetic to this argument, even though analysis, even by the gas industry, shows a drop in gas demand in Europe in the coming years and climate change campaigners continue to cite the risk of stranded assets – infrastructure that will never be used.

“I wouldn’t expect much change in the short term, but if there are substantial changes in gas policies, that could put additional pressure on the Biden administration to change its thinking,” Trio says.

In Washington, that discussion is likely to begin as the Biden administration tries to balance ambitious climate rhetoric with the economic potential of LNG exports.

“This is a big issue for the Biden administration,” says Samantha Gross, director of the Energy Security and Climate Initiative at the Brookings Institution. “Gas is important in the US and the industry is suffering in the recession. LNG would be a great way to monetize the gas that is being flared now, an epic waste that needs to stop, as well as keep an important industry moving.”

She adds: “However, gas is still a fossil fuel and the new administration is pushing for net zero emissions by mid-century. The administration will face opposing forces on gas policy, and I’m not sure which way they’re going to go.”

Methane standards

Tollmann says the Biden administration could focus on reducing the gas’s impact on the climate or researching new forms of gas such as hydrogento alleviate concerns about building new gas infrastructure. “I’ve heard that Biden is interested in addressing methane standards, and that’s a big interest for the EU because it recently revamped its. the methane strategy“, she says. “The new administration can also look at the quality of different types of gas that could be offered to Europe.”

This week, the International Energy Agency released a warning about the potential increase in methane emissions as the global economy recovers from Covid-19 and increases gas production.

“Biden’s imposition of strict new methane performance standards could serve, in part, as a government stamp on U.S. commodities tied to regulated markets,” says Kevin Book, managing director at research firm ClearView Energy Partners. “At the same time, tighter production controls could raise the price of these commodities, making them less competitive in a less auspicious market than the one we’re in.”

The Biden-Harris transition team did not respond Energy monitor about these issues before this article went to press. However, at a January 19 confirmation hearing for Secretary of State nominee Antony Blinken, Democratic US Senator Jeff Merkley he asked Blinken if the Biden administration would push the international lending institutions to stop financing new fossil fuel projects.

“Yes. That’s an area we want to focus on,” Blinken said. “We want to make sure we’re not doing anything to facilitate countries that are exporting dirty technology around the world — including something we’re seeing from China, which is, partly through the Belt and Road Initiative and other means, getting this technology around the world. It shouldn’t have international funding to do that.”

“Biden faces climate dilemma over LNG exports to Europe” was created and originally published by Energy Monitor, a brand owned by GlobalData.

The information on this site has been included in good faith for general informational purposes only. It is not intended to constitute advice on which you should rely and we make no representation, warranty or guarantee, whether express or implied, as to its accuracy or completeness. You should obtain professional or specialist advice before taking or refraining from any action based on the content on our website.