Everything Has Changed - Plan to Quickly Wean Europe Off Russian Gas Faces Major Hurdles

In response to Russia’s invasion of Ukraine, Europe is planning massive and rapid changes in its natural gas supply, including a significant increase in LNG deliveries from the U.S. But there are major challenges and implications associated with this shift. For example, how can the U.S. government prod U.S. exporters to send more LNG to Europe? How can LNG buyers — or sellers — collaborate without running afoul of European Union antitrust laws? Can the development of new LNG import terminals be fast-tracked? And can long-term contracts for Russian pipeline gas be breached without penalty now that Russia has suspended deliveries to Poland and Bulgaria for not paying in rubles? In today’s RBN blog, we discuss what U.S. and European efforts need to overcome.

As readers of Daniel Yergin’s “The Prize” will know, energy price spikes caused by military or geopolitical conflict are a hallmark of the oil industry. The Arab-Israeli War in 1973 gave rise to the first oil price shock of modern times, followed in 1979 when oil production was reduced after the Iranian revolution. More oil price shocks came with Iraq’s invasion of Kuwait in 1990 and the ensuing Gulf War and with the Arab Spring and Syrian conflict of 2011 and 2012, respectively.

Natural gas has been largely immune to unforeseen geopolitical conflicts — until now. Prior to 2022, the most severe gas crisis in Europe was the short-lived curtailment of Russian gas supplies piped via Ukraine in January 2006. A price dispute between Ukraine and Russia’s state-owned Gazprom included allegations that Ukraine was stealing gas from export pipelines, which it denied. That curtailment sent a clear message to European energy consumers that dependency on a single, nationally controlled supplier — a Russian one, no less — brings with it considerable risk.

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