Europe's efforts to wean itself off Russian natural gas could bolster the prospects of more U.S. LNG export capacity and challenge U.S. institutional investors looking to move away from the oil and gas sector, according to European energy experts.

European policymakers are putting a new emphasis on energy security in response to the Russian invasion of Ukraine and considering ways to reduce Europe's dependency on gas from Russia. Experts warned that it would be extremely difficult to replace imports of Russian gas, which accounts for more than 40% of the region's supplies. But the conflict has prompted rapid paradigm shifts that could see policymakers take steps to do so, experts said.

"We have to keep in mind that we Europeans are paying $7 billion to Gazprom every month — $2 billion goes directly to the coffers of the Russian Federation, which is more or less toward the army," Thierry Bros said in an interview, referring to Public Joint Stock Company Gazprom, the Russian-government-backed gas company. Bros is a professor at the Institute of Political Studies in Paris who specializes in energy and climate. "Therefore, this is killing Ukrainians. That is the very blunt analysis that we have to do. We never thought this money was going to be used to invade a country."

European gas buyers will likely turn to the LNG market to help reduce Europe's dependence on Russian supplies, according to experts on a March 2 panel hosted by Columbia University's Center on Global Energy Policy. Europe may also take steps to expand gas import infrastructure and eliminate transportation bottlenecks.

"This is going to increase demand for U.S. LNG and possibly oil," said Harrison Fell, a research scholar at the center. "That is going to test the resolve of large U.S. institutional investors that had, to some degree, been trying to move away from investments in shale plays or in oil and gas more generally."

Private money or smaller investors could also step in, Fell said.

A strategic decision for Europe

There are already signs of Europe looking to LNG. German Chancellor Olaf Scholz recently announced that Berlin had decided to fast-track the construction of two LNG terminals. American exporters have also reported an uptick in talks over long-term supply contracts that could support new LNG export facilities.

But the pace and scope of a pivot in European gas policy could have major implications for the global gas market and for world efforts to reduce planet-warming emissions. A faster shift from Russian gas would be more expensive and could see Europe burn greater amounts of higher-emitting coal. There also would be the possibility that a sudden disruption in Russian gas supplies could cause price shocks that reverberate through the global market.

A healthier transition from Russian gas supplies would likely take years, according to Pierre Noël, another research scholar at the Columbia center. Such a transition would involve policies that accelerate the growth of renewable and nuclear power generation facilities, promote demand reductions and efficiency, and encourage the development of new LNG export capacity worldwide by committing European buyers to long-term supply contracts.

"The European Union member states are in the process of making a strategic decision to over time move away from their gas relationship with Russia," Noël said. "If Europe were to lose its gas trade with Russia, this would be a big problem ... It would be a global issue, not a European one."

Limited slack in the global gas market

Pipeline deliveries of Russian gas exports to Europe are around 180 billion cubic meters per year. That is more than the entire capacity of the seven major LNG export terminals in the U.S., which is expected to become the biggest global LNG producer in 2022, according to a recent forecast by the U.S. Energy Information Administration. The EIA recently forecast that U.S. LNG peak production capacity will reach 13.9 Bcf/d by the end of the year, which is about 144 Bcm per year.

Existing LNG exporters remain limited in their ability to cover significant gaps in Russian deliveries on short notice. The highly contracted nature of the global LNG trade constrains the ability of exporters to redirect cargoes.

The majority of U.S. LNG cargoes have flowed to Europe in recent months, with U.S. facilities running full tilt. But the primary mechanism driving exports to Europe has been surging prices over concerns that the conflict could reduce the continent's access to supplies of pipeline gas at a time of tight winter inventories. April futures of the benchmark Dutch Title Transfer closed at $56.844/MMBtu March 2 at 4:30 p.m. London time.

So far energy supplies from Russia continue to flow to Europe, and this will likely continue as long as buyers are able to buy them, according to Jason Feer, head of business intelligence at Poten & Partners, who was speaking at a separate March 2 event. But the trade relationship may become increasingly unstable as Russia becomes financially and economically isolated, Feer said.

"Until the crisis, the U.S. wasn't really seen as a solution to Europe's energy problems — it has perpetuated their dependence on imports and perpetuated the use of hydrocarbons as Europe is trying to move toward a more decarbonized energy mix," Feer said. "There may be a rethinking of the U.S. role and the role of hydrocarbons in Europe as a result of the war."

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