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Russia-Ukraine War Reinforces LNG’s Role In Global Energy Security

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Emily Pickrell, UH Energy Scholar



As Europe scrambles to replace the gas coming from Russia, the U.S. is taking on a new role as the world’s largest producer of liquefied natural gas. For the Biden administration, it has also meant that climate change concerns have to be balanced with energy security issues and the global desire for a stable market environment.

The issue of a stable market is most visible in prices for liquefied natural gas, or LNG, have fluctuated wildly in the last six months. This is especially true in Europe since the beginning of 2022: European gas futures hit 20 times their U.S. price in early March, as the race has intensified to replace Russian gas.

Yet the sharp increase in European demand for LNG, while related to concerns about Russia, reveals problems in the Europe’s gas supply that existed even before the war. European natural gas prices were perpetually in the news last summer, driven by both a post-pandemic (round one, at least) spike in demand and some reductions in supply. At the end of 2021, European LNG prices were 14 times that of the U.S. natural gas benchmark, Henry Hub.

Some of this drop in production, such as closing Groningen’s natural gas field in the Netherlands, reflects Europe’s own challenges in balancing environmental concerns with energy security.

The sharp increase in European demand comes just as the U.S. has stepped into its role as the world’s largest LNG producer, overtaking Australia and Qatar in 2021. It’s been an incredibly quick change since 2016, when U.S. first began exporting in earnest. Production has tripled in the last three years.

And while some of this growing capacity was unused at the beginning of the pandemic, price increases in the last year have pushed U.S. LNG production to full throttle. In the third quarter of 2020, U.S. LNG terminals used about 43% of available liquefaction capacity, responding to lower prices and the pandemic environment. By the third quarter of 2021, it reached 98% in 2021, according to data from Natural Gas Intelligence.

Come 2022, and higher European prices have motivated individual U.S. producers to steer any available LNG production in the Old World’s direction.

The growing European appetite has coincided with increasing U.S. capacity. The U.S. produced a record 9.76 billion cubic feet per day (bcf/d) of LNG in 2021. In 2022, LNG production is expected to reach 12.19 bcf/d, and by 2023, 12.64 bcf/d.

Yet given the three to five year time frame required to build a new LNG terminal, most, if not all of this growth has had little to do with the war in Europe, driven instead mostly in anticipation of Asian growth.

Nevertheless, for the U.S., from a geopolitical perspective, it has felt like serendipity: its European clientele allow it to provide energy security, while ensuring the continent’s independence from Russia.

It was already starting to do so before the war broke out. Europe received 37% of total US exports in January, up from 23% of total US LNG exports last year, according to the US Energy Information Administration. These numbers will undoubtedly grow, with Germany and its neighbors determined to phase out Russian gas.

The Biden administration is still weighing how its climate change aspirations factor in to its energy security priorities for Europe. It had considered an interagency study on how to boost LNG efforts, but decided against it, at least for the time being.

Instead, the U.S. agreed in March to become a major long-term LNG supplier for Europe, increasing 2022 imports by two-thirds over the previous year. Biden has further promised to continue to ratchet up this supply to at least 50 billion cubic meters more annually by 2030.

Within the U.S., domestic natural gas production has been slow to rebound. This drop was a result of Wall Street-motivated production cuts driven by earlier lower prices during the early pandemic period. As the world again reopened, the tighter domestic market in turn led to record U.S. prices than are more than double the previous year.

Both an increased export supply to Europe and high domestic prices have pushed up LNG spot prices for the U.S.’ primary customer, Asia.

For LNG producers, all of this looks like good news. For example, Excelerate Energy, an LNG terminal company, raised nearly $400 million in one of 2022’s biggest initial public offerings, as investors try to ride the crest of the emerging industry.

Yet the international LNG industry has used rising prices to raise concerns about how they might impact LNG’s future.

In a public letter, these gas importers instead are pushing for worldwide market interventions to encourage further LNG growth by reducing cost fluctuations. The reason, they argue, is because LNG is and will continue to be a critical component of energy security.

“In light of the current global energy crisis, access to LNG is increasingly critical to energy security and emission reduction worldwide, including in emerging markets,” wrote the International Group of Liquefied Gas Importers in an April 12, 2022 open letter. “In this context, further facilitation and strengthening of LNG trade is paramount.”

This kind of coordination is not an unreasonable request – one championed by energy scholars such as Daniel Yergin - given that the establishment of an increasingly global LNG market has international implications as well for peace and prosperity.

“That is part of what you do as a global energy provider,” said Ramanan Krishnamoorti, the chief energy officer at the University of Houston. “If the US can demand that OPEC can play a significant role in stabilizing oil prices by increasing supply, by finding the best ways to deliver the oil, I think we are obliged to do the same thing as one of the most significant LNG exporters.”

Until that happens, markets such as Asia will continue to try to readjust themselves, even at the expense of other global priorities. In this case, Asian efforts to benefit financially - by arbitraging its own rights to long-term contracts for LNG – have led to an increase in coal and oil consumption instead.

And this where the balancing act comes in. It is well within U.S. interests to ensure that a growing Asian LNG demand can be met with reasonable prices in a global context, rather than cheaply by those with authoritarian strings attached.


Emily Pickrell is a veteran energy reporter, with more than 12 years of experience covering everything from oil fields to industrial water policy to the latest on Mexican climate change laws. Emily has reported on energy issues from around the U.S., Mexico and the United Kingdom. Prior to journalism, Emily worked as a policy analyst for the U.S. Government Accountability Office and as an auditor for the international aid organization, CARE.

UH Energy is the University of Houston’s hub for energy education, research and technology incubation, working to shape the energy future and forge new business approaches in the energy industry.

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