Drop in US LNG imports to EU spells trouble for trade deal

For two years, the European Union has been the largest regional buyer of American liquefied natural gas. Sanctions against Russia, including a ban on LNG purchases from 2027, motivated this change, actively encouraged by the second Trump administration. But last month, Europe shunned American liquefied gas because it was too expensive. This will pose a problem for the trade agreement that has just come into force.

Last July, President Donald Trump and European Commission President Ursula von der Leyen signed a trade deal that would guarantee preferential treatment to U.S. products sold in the EU, including energy products. Indeed, Von der Leyen committed, on behalf of the 27 members of the EU, to purchase $750 billion worth of American energy raw materials over a period of three years. Needless to say, most of these purchases would consist of liquefied gas, which the European Union continues to need in considerable quantities despite the efforts of politicians and climate activists.

It was clear from the start that this would be a real challenge: $750 billion, or $250 billion a year, is a pretty large sum that would buy a lot of oil and gas — in fact, all the oil, gas and coal the United States has available for export, according to Reuters’ Clyde Russell. However, beyond what is physically possible, the EU would also struggle financially to meet its trade deal obligations, as the latest import figures suggest.

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In June, European gas buyers absorbed less than half of all U.S. liquefied natural gas exports. It was the first month in two years that Europeans bought so little U.S. LNG, Reuters reported this week, citing LSEG data. The reason was the price. The European TTF benchmark price averaged $13.19 per million British thermal units last month. In contrast, the Asian LNG benchmark averaged $17.33 per mmBtu – which is why most US LNG exports went to Asia and Egypt, which urgently needed the gas. There is, however, a twist in the plot. The EU also urgently needs gas.

The European Union ended the last heating season with stored gas levels well below the five-year average, as last winter was not as mild as the previous two. Today, the bloc faces the lowest gas storage levels for next winter in 15 years, the Financial Times reported in late June. The report attributes the deficit to the war in the Middle East and the disruption of supplies from Qatar.

“Even though the announced US-Iran deal has lowered gas prices and raised hopes of a massive return of Middle East Gulf supply to the market, the more limited LNG supply we see, the lower European gas stocks will be heading into winter and the greater the risk of a winter price spike. » said Natasha Fielding, analyst at Argus Media, quoted by the FT.

Yet there is an abundance of American liquefied gas that the European Union can – and must – buy. However, despite the trade deal, some doubts have been expressed about it. Several U.S. energy industry executives told Bloomberg last month that European gas buyers are avoiding long-term supply deals for fear of developing an overreliance on a single gas supplier, essentially replacing dependence on Russia with dependence on the United States.

Brussels officials have the same apprehensions. Their big problem is that there will always be a dependence on the big suppliers and the EU is committed to becoming even more dependent on the big ones. Meanwhile, European gas buyers have been gobbling up every cargo of Russian liquefied gas they can find, in anticipation of a ban on such purchases in 2027. As the ban takes effect, dependence on American liquefied gas will inevitably increase. The EU will rely on the US for up to 80% of its LNG imports, according to a pro-transition think tank. That would be an increase from 58% last year, the Institute for Energy Economics and Financial Analysis warned last month.

It is of course worth noting that the European Union does not rely solely on liquefied gas. It also imports from the pipeline from Norway, Algeria and Azerbaijan, but this is not enough to cover demand, especially after the Nord Stream pipeline ceased operations due to sabotage. To make matters even more complicated, the EU effectively prevents Norway from increasing its gas production, which could then boost its exports to the bloc. Brussels is strongly opposed to further gas drilling in the Arctic, where Norway’s untapped resources are located.

Until European Union leaders clearly define their priorities and decide whether they prefer to become extremely dependent on a single gas supplier or diversify with more local supply, it is likely that this dependence will remain quite overwhelming.

By Irina Slav for Oilprice.com

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