US clinches LNG supply deal with Europe

In a significant development, the European Union and the United States have signed a deal, which sees Washington supplying liquefied natural gas (LNG) to Europe.

Russia’s invasion of Ukraine has pushed already high LNG prices to record high and has prompted the EU to pledge to cut Russian gas use by two thirds this year, by hiking imports from other countries and quickly expanding renewable energy.

US President Joe Biden has promised that the United States would deliver at least 15 billion cubic metres (bcm) more LNG to Europe this year than was planned earlier, said sources.

The deal also includes higher U.S. LNG exports to the EU in 2023.

The Russian Ukraine conflict is significantly benefitting the US economy in terms of heightened weapons and LNG sales to Europe. Since years, Washington had pushed European countries to boost their defense expenses to 2% of their GDPs. This conflict has convinced Europe to do so now.

“We expect near-term measures to support European LNG imports to rely on the reallocation of existing supply,” said analysts at Goldman Sachs while noting “such a relocation to Europe is already happening” because European gas prices have in recent months mostly been the highest in the world.

“But almost all of it in the U.S. already belongs to somebody. It is under contract,” said Jason Feer, global head of business intelligence at Poten & Partners, an energy and shipping consultancy in reference to new LNG capacity expected to enter the US this year. “If Europe wants more LNG, they are going to have to pay for it.”

The deal, is hugely beneficial to the US, since it will earn top dollar for the gas supply and steal Russia’s LNG market share in Europe.

U.S. exporters have shipped record volumes of LNG to Europe in recent months and have diverted supplies to Europe from existing contracts.

LNG prices in Europe have jumped by more than 10 times compared to a year ago, with buyers in Europe and Asia competing for tight supply.

According to a draft document, EU leaders are scheduled to agree to “work together on the joint purchase of gas, LNG and hydrogen” ahead of next winter, and coordinate filling gas storage.

Such moves are aimed at building a supply buffer of non-Russian gas. The EU’s executive European Commission would lead negotiations pooling demand and seeking gas, following a model the bloc used to buy COVID-19 vaccines.

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