Why Europe Will Struggle to Buy More US Gas

The transatlantic energy relationship has been thrust into the spotlight as former US President Donald Trump’s recent threats of tariffs reignite tensions. Trump has warned the EU to increase imports of American liquefied natural gas (LNG) or face punitive trade measures. Despite the EU’s verbal openness to replacing Russian gas with US alternatives, structural barriers, market dynamics, and geopolitical intricacies present significant challenges.

The EU’s Dependence on Russian LNG

In 2022, the EU pledged to reduce its reliance on Russian fossil fuels entirely by 2027. However, reality paints a different picture. European imports of Russian LNG hit record highs last year, even as the bloc worked to reduce pipeline gas dependence. This paradox stems from Russian LNG’s cost advantage, a crucial factor for industries in member states like Germany, which continue to grapple with energy affordability.

EU gas prices remain over three times higher than US levels, severely impacting the bloc’s competitiveness. The reliance on spot markets and the absence of government-backed procurement mechanisms exacerbate the situation, leaving European buyers to prioritise cost over geopolitical alignment. Russian LNG’s relative affordability makes it a challenging competitor for US LNG.

Can the US Fill the Gap?

The US LNG industry claims to possess sufficient capacity to supplant Russian LNG. S&P Global Commodity Insights estimates that over 10 million tonnes of LNG are contracted for European delivery from under-construction US plants, with an additional 9.5 million tonnes available for buyers. By 2029, this capacity could exceed the 17 million tonnes of Russian LNG the EU imported in 2022. Moreover, the EU has untapped regasification capacity that could accommodate these volumes.

However, logistical bottlenecks, including Europe’s fragmented energy infrastructure, limit its ability to absorb additional LNG. Furthermore, LNG pricing dynamics complicate matters. US LNG is largely indexed to Henry Hub prices and market-driven, contrasting with the longer-term, lower-cost agreements offered by competitors like Qatar. This price sensitivity poses a critical obstacle for European industries already reeling under high energy costs.

Policy and Political Roadblocks

While the European Commission has signalled support for increasing US LNG imports, it lacks direct purchasing power. Energy procurement remains the purview of individual member states and private companies. Achieving consensus among the EU’s 27 members on measures like LNG sanctions or coordinated purchasing is notoriously challenging, with countries like Hungary and Slovakia consistently opposing stricter Russian sanctions.

The US administration’s hesitance to impose tougher sanctions on major Russian LNG facilities, such as Yamal, reflects the complexities of the global LNG market. Adding these facilities to the sanctions list could drive up prices further, counteracting the EU’s efforts to stabilise energy costs.

MY ANALYSIS: A Delicate Balance of Economics and Strategy

Europe’s struggle to wean itself off Russian LNG underscores the intersection of economics and geopolitics. While Trump’s push for increased US LNG exports aligns with broader American energy ambitions, the reality is that European buyers—motivated by price considerations—may not shift en masse toward American supplies.

A potential solution lies in greater EU coordination. Establishing a strategic LNG reserve, as suggested by Cheniere Energy, could provide a buffer against supply shocks and incentivise US LNG imports. Additionally, Brussels must expedite infrastructure investments to enhance regasification capacity and intra-EU energy transport networks.

On the supply side, the US could explore policies to make LNG exports more competitive. This might include export incentives or government-backed long-term agreements to rival Qatar and Russia’s pricing models. Such measures could help mitigate Europe’s price sensitivity and align commercial and geopolitical interests.

Conclusion

Europe’s energy transition is at a critical juncture. While American LNG offers a viable alternative to Russian fossil fuels, realising this potential requires addressing entrenched economic, logistical, and political barriers. Only through coordinated policy action and strategic investments can Europe hope to navigate these challenges and bolster its energy security in an increasingly volatile geopolitical landscape.