The US LNG decision boosted optimism in Russia
Gasification of the conflict

ANALYTICS  05 February 2024 - 16:41

On January 26, 2024, the Biden Administration announced that it would place a temporary “pause” on pending decisions to export liquefied natural gas (LNG) to countries with which the United States has not entered into a free trade agreement (FTA) requiring national treatment for trade in natural gas. The pause will remain in place until the U.S. Department of Energy (DOE) has had time to update its analyses on whether LNG exports to non-FTA countries are in the public interest.

The U.S. LNG exports have been a critical source of global energy security in the past two years. Without substantial, flexible LNG supplies from the United States, it is difficult to imagine how Europe could have adjusted to Russia's dramatic drop in pipeline gas supplies.

The decision to pause approvals for new LNG export terminals along the U.S. coastline has caused an uproar of discontent among Republicans, the oil and gas lobby, and intellectuals. The impact of Washington’s decision on the global energy market stretches well beyond the United States and its strategic allies. In 2023, roughly 67% of U.S. LNG exports went to Europe, and 26% went to Asia. However, the White House insists that the current LNG exports and projects under construction will not be affected. In 2023, the US became the world’s largest LNG exporter, surpassing Australia and Qatar last year. Nevertheless, the announced decision will affect future projects and have financial ramifications for the government and leading energy companies.

The decision by President Joe Biden, announced as the 2024 presidential election year kicks off, aligns the Democratic president with environmentalists who fear the massive increase in exports of liquefied natural gas, or LNG, is locking in potentially catastrophic planet-warming emissions when Biden has pledged to cut climate pollution in half by 2030. Environmentalists argue that LNG exports will lock in fossil fuel consumption to the detriment of renewable energy sources. They also allege that U.S. natural gas exports' lifecycle emissions are worse than coal's.

Undoubtedly, the U.S. surprise decision boosted optimism in Russia and discontent in Europe amid the latter's efforts to neutralize Moscow by imposing harsh economic sanctions due to its invasion campaign against Ukraine. As such, the news explicitly encouraged Russia as it may get additional leverage over the E.U. countries amid energy shortage. Moreover, the possibility of halting the construction of new LNG terminals in oil-and-gas extracting states in the U.S., such as Texas, would create additional friction in American society. Unsurprisingly, Russian officials have re-initiated talks on Moscow’s readiness to negotiate with Brussels on reinstating trade routes supplying natural gas via various paths, including through Ukraine.

Consequently, since the inception of the war in 2022 and the introduction of new sanctions, Russia sought opportunities to increase LNG exports globally in order to alleviate the shrinking economy and tackle the financial crisis. According to the Russian media, in 2024, the growing rifts between the E.U. countries may increase the chances for Russia to re-activate LNG exports to some of the bloc's countries.

The E.U. and some U.S. officials acknowledge that Joe Biden's decision regarding LNGs is destructive and impulsive as the pause is an unwise energy policy, an encroachment on free trade, and a continuation of the Biden administration’s use of uncertainty as a political weapon against energy suppliers. Notwithstanding, other independent experts believe that the Biden administration’s decision will unlikely have fatal consequences for Europe’s energy supply and market stability.

The U.S. is already experiencing a visible surplus of LNG projects. Thus, this decision should not have dramatic consequences for the US LNG sector or its external commitments. Moreover, Europe's natural gas storage still has active reserves to cover the shortage. Also, the U.S. decision does not immediately affect its supplies to Europe. As such, the E.U. will not opt to re-initiate talks with Russia in an effort to restart LNG supplies. Therefore, Moscow will keep re-routing all energy resources to the Asian market to compensate for losses, though not entirely.

The E.U. countries already drafted a collective letter to U.S. President Joe Biden to "rethink his position" at this critical time, while pro-Russian groups and political communities within the E.U. took it for granted to speak out loudly about Ukraine, criticized military aid and called on to restore energy partnership with Moscow.

Indeed, the Biden administration's approach increased Russia's optimism, as it may further fluctuate relations between the E.U. and Washington, paving the way for Moscow's slow infiltration into the energy market.

Caliber.Az