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Stopping the Gap

On March 25th, the US announced that it will supply or coordinate the supply of 15 billion cubic meters (‘bcm’) of natural gas to Europe. Senior administration officials have not indicated where the additional supply would come from, making the details of the arrangement a bit vague (1). Nevertheless, the move is part of a broader effort to ween Europe off of an unhealthy dependence on its Russian trading partner. Earlier in March, the European Commission released a plan to ‘make Europe independent from Russian fuels well before 2030’. The commission outlined a three-part approach to reduce dependence, which includes 1). Diversifying supplies of LNG imports, 2). increasing the pace of development for renewable energy solutions, and 3). Continuing to push for less use of fossil fuels within the home (2). In 2021, Russia exported 155 bcm of natural gas to Europe (2). The EU’s most recent proposal calls for a two-thirds reduction of this amount by the end of this year; meaning only 51.15 bcm imported from Russia. It also calls for an additional 50 bcm from non Russian sources, including the announced 15 bcm from the US. For argument, let’s assume the US successfully delivers 15 bcm of NG to Europe this year. How tall of an order would the additional 35 bcm be? Nikos Tsafos is an energy specialist at CSIS, a large think tank specializing in national security advisory. Based on his estimates, an additional 110 bcm of new supply will hit global markets by 2026. Of this amount however, roughly 70 bcm, will supply China (3). That leaves 40 bcm for the rest of the world, including Europe, by 2026. Based on this analysis, securing 35bcm by the end of this year is no small feat. To further demonstrate how tall of an order this is, let’s take a closer look at a new offshore LNG export facility being proposed by New Fortress Energy. On an annual basis, it is estimated that the facility could produce 2.8 million metric tons of natural gas (4). This equates to roughly 2.04 bcm of natural gas; a small drop in a 35 bcm bucket (5). Let’s also remember that 35 bcm is a likely generous assumption. Stopping this gap will require more firms like New Fortress are going to have to step in. Regulation will also have to facilitate the process. Last week, the Federal Energy Regulatory Commission walked back some new natural gas policies after they got some pushback. The updates would have required already-approved NG projects to meet an additional set of standards, and likely wouldn’t have been helpful at a time like now (6). Ultimately, I think it will be hard for Europe to reduce NG imports from Russia by two-thirds by the end of this year. And unfortunately, I think it’s likely this transition will take longer than desired.

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