The Russian invasion of Ukraine has focused on the production and trade of liquefied natural gas (LNG), an important part of Russia’s energy efforts in Europe.
Prior to the invasion, Russia was Europe’s third largest supplier of LNG after the United States and Qatar, accounting for 20 percent of imports, according to the US Energy Information Administration.
In March, following the invasion, the Biden administration announced an agreement to increase LNG exports to the EU to cover about a third of Russia’s imports.
Here are five things to know about the LNG industry and its significance in the Ukraine crisis.
It puts the United States in a position of strength
The United States already led in LNG exports to Europe by 2021, accounting for 26 percent of its imports. US exports of these resources to Europe were increasing even before the Russian invasion. They saw an increase of 3.4 billion to 6.5 billion cubic feet per day between November 2021 and January 2022.
This comes after the “incredible growth” that the sector has seen in the United States in recent years, said Ben Cahill, a senior fellow in the Energy Security and Climate Change Program at the Center for Strategic and International Studies.
“Basically, the United States had no LNG export industry at all before 2016,” Cahill told The Hill. “Now we’re already the largest exporter in the world in terms of capacity. And it’s pretty amazing when you think about it. It’s really only a short number of years that’s brought us from zero to more capacity than Australia and Qatar. ”
The shift gave the US a strategic advantage because “LNG was growing and delivering flexible volumes to the market at a time when Europe obviously needed it … so it was a lucky series of events for us LNG exporters,” he added.
Russia had to expand its own LNG footprint before the invasion
Russia is “a fairly new player” in the LNG industry, Cahill said, but already has two major projects. The first, the Yamal LNG project, will transport 16.5 million tonnes of LNG from the port of Sabetta on Russia’s Yamal Peninsula.
The second, Arctic LNG 2, was to be launched in 2023 with an expected production capacity of almost 20 million tonnes. However, a number of international investors withdrew from the project after Russia invaded Ukraine, including the Italian government, which froze its share of the funding. Japan and France followed suit shortly after.
Russia “had, and has, a lot of many projects in line [but] whether these projects will move forward is anyone’s guess, ”said Emily McClain, senior gas analyst at Rystad Energy.
“There is definitely a potential to see those put on hold or being completely canceled,” she added. “So I think it really is everyone’s guessing at what and how Russia’s LNG future will develop.”
US export capacity is almost maxed out
Despite the US increasing LNG imports to Europe, experts said at one point that there is not much more that can be done on the supply side.
“The United States exports every molecule of natural gas we can,” Samantha Gross, director of the Brookings Institution’s Energy Security and Climate Initiative, told The Hill. “Our LNG facilities that we have are becoming full … not because any politicians have asked them to, but because high prices encourage it.”
The administration’s promise to increase exports to Europe, she said, may run into the fact that “producers produce everything they can and sell it to the market, where they have contracts in the market, where they get the best price,” she said.
As a result, she said, in order to meet the commitments to increase supply to Europe, there may need to be “some arm twists and turns, and perhaps encouragement from buyers and other countries should reduce their demand,” she said. “There is not a ton of extra LNG capacity just sitting there waiting to supply Europe.”
“[With] LNG prices are so high that all manufacturers worldwide have incentives to produce flat, ”Cahill added. “So the LNG export industry is maximized in the United States, and it’s an incredible arbitrage opportunity.”
Increased exports to Europe mean less for other markets
By 2020, Asia became the largest destination for US LNG exports. The continent saw a 67 percent increase in imports from 2019, according to the EIA.
Chinese imports saw the biggest increase in the wake of China lowering tariffs on US LNG imports by more than half.
With a limited supply of US LNG for export, some of the extra shipped to Europe will be diverted from Asia. “If you have a cold winter next year in Northeast Asia, places like China, Japan and South Korea, the demand for gas will be strong and these LNG loads will be needed there,” Cahill said.
Many of the buyers in Asia have long-term contracts that allow redirection to other markets. But if the buyers need them [imports]they want to stay in Asia, and to bid them away from Asia to Europe, they will need very high prices, ”Cahill said.
In the meantime, however, circumstances have adjusted so that the diversion does not cause major problems, McClain said.
“What we’ve seen in Europe is a change from about 30 percent last year of US exports going to Europe, it’s now at 60 percent. And what that means is that other regions, like Asia in particular, are offsetting “The supplies we would be directed to would typically have gone to Asia. And the same with South America,” she said.
But with parts of Southeast Asia reintroducing coronavirus-related restrictions, much of the usual demand for LNG has been dulled in those regions, she added.
Environmental groups are not happy
Proponents of renewable energy have called the Ukraine crisis and the corresponding rise in gas prices an additional incentive to switch from fossil fuels. However, many of them have been dissatisfied with the weight of natural gas, which is predominantly methane, one of the most harmful greenhouse gases.
Methane is about 25 times more efficient at capturing heat in the Earth’s atmosphere as carbon dioxide, and many proponents have pointed to reducing methane as a faster way to reduce emissions.
“With the current international conflict and escalating energy prices, it’s time for the administration to move away from fossil fuels, including halting LNG exports and building infrastructure,” said Peggy Shepard, co-founder and CEO of WE ACT for Environmental Justice, said in a statement after the US and Europe announced the agreement.
“Building even more LNG export terminals would lock in fossil fuel and pollution infrastructure for decades to come.”
However, Cahill said this could be an opportunity to promote emission reduction targets.
“Many people in Europe do not want to buy more gas. But the reality is that they need new gas supplies to reduce their dependence on Russia,” he said.
“It could actually be a win-win if they find alternatives to Russian gas that have a lower emission intensity. And so the challenge for the US LNG sector is, can you produce cleaner gas here? Can you reduce methane and CO2 emissions? the discharge? ”