“Buyers should beware the pitfalls of making rash decisions in desperate circumstances.” – Energy Flux, October 2021
A source of constant tension in the energy world is the mismatch between long-term investment horizons and short-term market events. This tension is exacerbated by accelerating energy market volatility and, to some extent, the erosion of attention spans in the era of 24/7 social media news. That tension is now melting into anxiety and even panic amid the prospects of real, physical energy shortages in Europe should flows of Russian gas be disrupted. But is Europe about to strike a slew of American gas deals that will do nothing to alleviate imminent shortages while heaping future risks onto consumers?
Russia’s invasion of Ukraine has focussed minds in the EU Commission, which has finally embraced the need to end its reliance on Russian gas with a concerted push to reduce energy demand, electrify heating, redouble renewables deployment and – crucially – diversify gas supply sources.
On this latter point, the EU Commission seems prepared to dive headlong into new long-term supply contracts for liquefied natural gas (LNG) from the US, which is poised to become the world’s largest exporter of the fuel this year. The White House and Brussels last week launched a Task Force for Energy Security dedicated ostensibly towards sending more US LNG cargoes to Europe to mitigate against shortfalls in the event of a halt to Russian pipeline flows.
The EU-US joint statement and accompanying factsheet raise as many questions as they answer. The obvious shortcoming is that there is no means of sending more LNG to Europe this year without depriving other regions, with all the attendant negative consequences. And new export projects will take 3-5 years to build.
This article dissects the most significant elements of that EU-US framework agreement in the wider context of today’s extraordinary geopolitical tensions, energy policy upheaval and LNG project financing requirements. Finally, it asks whether this high-level political accord could translate into asymmetrical commercial deals that come back to haunt buyers when macro market conditions inevitably recede from the high watermark of today’s astronomical energy prices.