Is Energy Security Compatible With the Green Transition? The Case of the US-EU LNG Deal

By K.A. Dhananjay, Policy Brief Writer

Image source: dnv.com

In late March, the EU signed a liquified natural gas (LNG) deal with the US, as Europe faces its greatest energy crisis in decades due to Russia’s invasion of Ukraine. According to the terms of the deal, the US will supply an additional 15 billion cubic meters (bcm) of LNG to Europe, which is expected to increase to around 50 bcm by 2030. The US is already the largest exporter of LNG to Europe — accounting for roughly 70% of the EU’s LNG imports in 2022 — and stands to become a strategic alternative supplier that can help Europe wean itself off Russian gas.

From an energy security perspective, this is a clear win, but in the context of the EU’s decarbonisation commitments, what does the LNG deal mean for the green transition? Does the need for alternative gas supplies risk creating long-term lock-ins with negative effects for the environment? And will the need for additional LNG infrastructure, such as pipelines and regasification terminals, divert funds away from renewable energy?

Firstly, more LNG imports will require heavy investment in regasification terminals and pipelines in order to ensure an effective supply of fuel. Unless the EU is willing to dish out additional funds for this, it will necessarily come at the expense of renewable energy.

Secondly, since LNG plants in the US are currently operating at capacity, new supplies will require additional production and export capacity unless higher energy prices in Europe simply draw existing production away from Asia. This is not desirable, however, as it would negate decarbonisation gains in Asian states by forcing them to rely more on fossil fuels (especially coal) and undermine their energy security.

Moreover, given that LNG projects take 4–5 years to build and require roughly 20 years to recoup initial capital investments, the EU’s plans to cut gas consumption significantly by 2040 risks stranding the investments needed for new production.

One policy option is for the US to redirect its exports towards Asia at a discounted price as demand in Europe falls. This would not only ensure that new investments are financially sound, but could also help Asian countries reduce their dependence on coal. Yet, this will depend on the policies of Asian governments over the coming ten years and on how far the US is willing to discount its supplies.

Another option vis-à-vis infrastructure investments in Europe is to ensure that new pipelines are made compatible with future green hydrogen production and that they do not leak gas into the atmosphere. Additionally, regasification terminals could also be constructed to allow for carbon capture and storage. Given the magnitude of additional investments needed to scale up green hydrogen, however, this course of action is not without issues of its own.

In addition, US-EU energy cooperation could help promote the renewable energy that will be crucial to Europe’s future energy security and sustainability. The recently-established US-EU Trade and Technological Council is a good place to start. In the Council, a working group on Climate and Clean-Tech is already up and running to coordinate efforts in identifying and implementing cost-effective cleantech solutions. The working group’s inclusion of both government and stakeholder actors, promotion of public-private partnerships in areas like R&D and holistic industry-centric approach will be vital for boosting bilateral investments in green energy. This is what should be the core of any European energy security and decarbonisation strategy.

In case you missed it (May 25th — June 8th)…

  • May 30th-31st: European Council extraordinary summit on Ukraine, defence, energy, and food security (security).
  • May 31st: EU introduces partial oil embargo on Russia (security).
  • June 1st: Danish EU defence opt-out referendum (security).
  • June 2nd-3rd: Stockholm+50 plenary sessions (environment).
  • June 2nd-4th: GLOBSEC Bratislava Forum (security).
  • June 3rd: Foreign Affairs Council (Trade) on WTO reform and EU-US trade relations in Luxembourg (EU-US-Asia relations).

Keep a look-out for (June 8th — June 22nd)…

  • June 4th-17th: Sweden hosts BALTOPS 22 NATO exercises in Stockholm (security).
  • June 6th-9th: European Parliament plenary session in Strasbourg (to discuss, among other things, proposed changes to the carbon border adjustment mechanism (CBAM) and Emissions Trading System (ETS)) (environment).
  • June 8th: Chairman of Ukraine’s Verkhovna Rada (Parliament) addresses the European Parliament in Strasbourg.
  • June 9th: NATO Secretary General Jens Stoltenberg meets German Chancellor Olaf Scholz in Berlin (security).
  • June 9th: January 6th select committee will hold a hearing providing Americans a summary of their findings about the “coordinated, multi-step effort to overturn the 2020 presidential election” (democracy).
  • June 10th: Shangri-La Dialogue security summit in Singapore (security/EU-US-Asia relations).
  • June 10th: Bucharest Nine Summit (security).
  • June 10th: Collective Security Treaty Organization foreign ministers meet in Yerevan.

Our Reading Picks:

  1. ‘Europe needs a smarter way out of Russian gas’ by Nikos Tsafos.
  2. ‘Don’t ignore the exchange rate: How a strong ruble can shield Russia’ by Charles Lichfield.
  3. ‘The Brief — Call the doctor, French democracy is sick’ by Davide Basso.
  4. ‘EU spending on climate action ‘overstated’ by €72 billion, auditors say’ by Frédéric Simon.
  5. ‘Europe’s Oil Embargo Is Not Enough’ by Sergei Guriev.

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