US and EU Discuss Long-Term Natural Gas Supply Contracts... Key Issue Is Facility Investment Costs

EU Discusses Decades-Long Contracts to Reduce Dependence on Russian Natural Gas

The U.S.-made liquefied natural gas (LNG) carrier 'Isabella' is docking at the LNG terminal in ?winouj?cie, northwestern Poland, on the 28th (local time).
[Image source=Yonhap News]

[Asia Economy Reporter Kim Jung-wan] The European Union (EU) is discussing the possibility of signing long-term liquefied natural gas (LNG) supply contracts with the United States, spanning several decades, to reduce its dependence on Russian natural gas.

The US daily Wall Street Journal (WSJ) reported on the 28th (local time) that the United States and the EU have agreed to increase US LNG exports to the EU until 2030.

The EU is under urgent pressure to find alternatives as Russia has completely cut off natural gas supplies to EU member countries Poland and Bulgaria.

The EU's dependence on Russian natural gas is quite high, with about 40% of its natural gas imports coming from Russia. However, WSJ pointed out that the US is already exporting LNG to the EU at its maximum capacity, so increasing supply would require billions of dollars to build new facilities.

To secure financing from financial institutions for constructing facilities such as LNG terminals, LNG supply contracts typically need to be around 20 years in duration. Initially, the US and EU opposed long-term contracts related to fossil fuels like LNG, as they planned to reduce greenhouse gas emissions under the Paris Agreement, but recently their stance has changed.

According to sources, EU and White House officials have recently met with industry representatives and expressed support for long-term supply contracts.

Melanie Nakagawa, Special Advisor to the US President and Senior Director for Climate and Energy at the National Security Council (NSC), attended an event hosted by the think tank Center for Strategic and International Studies (CSIS) and formalized the shift in position on long-term supply contracts by stating, "Europe has demand for US LNG, and US suppliers can provide gas in the form of long-term contracts."

However, even if long-term supply contracts are established, the challenge remains that there is a lack of LNG-related infrastructure facilities in the European region to handle this. To use LNG brought in through ports, terminal facilities are needed to unload, store, and transmit it to inland areas.

Currently, LNG import terminals in Northwestern Europe are operating at full capacity, causing LNG entering Europe to be sold at low prices. There is no storage space for imported LNG, so it cannot fetch its proper value.

Germany, which currently has no LNG import terminals, began constructing related facilities after Russia's invasion of Ukraine.

There are also difficulties from the US perspective. The period the EU has committed to is until 2030. WSJ cited industry sources saying this is too short a period for LNG exporters to recover their massive investments.

In any case, WSJ pointed out that it is impossible for Europe to replace Russian natural gas in the short term. According to CSIS estimates, the earliest LNG facilities currently under construction will be able to supply Europe around 2026.

This content was produced with the assistance of AI translation services.