5 things to know about liquefied natural gas and its role in the Ukraine crisis

The Russian invasion of Ukraine has put a spotlight on the production and trade of liquefied natural gas (LNG), a key part of Russia’s energy leverage in Europe.   

Before the invasion, Russia was Europe’s third largest supplier of LNG after the U.S. and Qatar, accounting for 20 percent of imports, according to the U.S. Energy Information Administration.  

In March, following the invasion, the Biden administration announced a deal to increase LNG exports to the EU to cover about one-third of imports from Russia.   

Here are five things to know about the LNG industry and its significance in the Ukraine crisis.   

It puts the U.S. in a position of strength   

The U.S. already led in LNG exports to Europe in 2021, providing 26 percent of its imports. The U.S. export of these resources to Europe were on the rise even before the Russian invasion. They saw an increase of 3.4 billion to 6.5 billion cubic feet a day between November 2021 and January 2022.   

This comes after the “incredible growth” the sector has seen in the U.S. in recent years, said Ben Cahill, a senior fellow in the Energy Security and Climate Change Program at the Center for Strategic and International Studies.   

“Basically the U.S. had no LNG export industry at all until 2016,” Cahill told The Hill. “Now, already, we’re the largest exporter in the world by capacity. And it’s pretty stunning when you think about it. It’s really just a short number of years that’s brought us from zero to more capacity than Australia and Qatar.”   

The shift gave the U.S. a strategic advantage because “LNG was growing and providing flexible volumes to the market at a time when Europe obviously needed it … so it was a fortunate series of events for us LNG exporters,” he added.   

Russia was set to expand its own LNG footprint before the invasion   

Russia is “a fairly new player” in the LNG industry, Cahill said, but already has two major projects. The first, the Yamal LNG project, is set to carry 16.5 million metric tons of LNG from the port of Sabetta on Russia’s Yamal Peninsula.      

The second, Arctic LNG 2, was set to launch in 2023 with a projected production capacity of nearly 20 million metric tons. However, a number of international investors pulled out of the project after Russia invaded Ukraine, including the government of Italy, which froze its share of the financing. Japan and France followed suit shortly afterward.  

Russia “had, and have, a lot of a lot of projects lined up [but] whether or not those projects will move forward is anyone’s guess,” said Emily McClain, a senior gas analyst at Rystad Energy.   

“There’s definitely a potential to see those placed on hold or being canceled altogether,” she added. “So I think that’s really anyone’s guess on what and how Russia’s LNG future will unfold.” 

U.S. export capacity is nearly maxed out   

Despite the U.S. stepping up LNG imports to Europe, experts said at a certain point there’s not much more that can be done on the supply side.   

“The United States is exporting every molecule of natural gas we possibly can,” Samantha Gross, director of the Brookings Institution’s Energy Security and Climate Initiative, told The Hill. “Our LNG facilities that we have are going full out … not because any politician told them to but because high prices encourage that.”   

The administration’s vow to increase exports to Europe, she said, may run up against the fact that “producers are producing everything they can and selling it to the market where they have contracts in the market where they’re getting the best price,” she said.  

As a result, she said, to meet commitments to increase supply to Europe, there may “have to be some arm-twisting, and maybe encouraging buyers and other countries should reduce their demand,” she said. “There’s not a ton of extra LNG capacity just sitting there waiting to supply Europe.”   

“[With] LNG prices this high, every producer around the world has incentives to produce flat out,” added Cahill. “So the LNG export industry is maxed out in the United States and it’s an incredible arbitrage opportunity.”   

Increased exports to Europe means less for other markets   

In 2020, Asia became the top destination for U.S. LNG exports. The continent saw a 67 percent increase in imports from 2019, according to the EIA.  

Chinese imports saw the biggest increase in the wake of China cutting tariffs on American LNG imports by more than half.   

With a finite supply of American LNG to export, some of the extra sent to Europe will be diverted from Asia. “If you have a cold winter next year in Northeast Asia, places like China, Japan and South Korea, the gas demand will be strong and those LNG cargoes will be needed there,” Cahill said.    

Many of the buyers in Asia have long-term contracts that allow diversion to other markets. However, “if the buyers need those [imports], they’re going to stay in Asia, and to bid them away from Asia towards Europe, they’ll need very high prices,” Cahill said.   

In the meantime, however, circumstances have aligned so that the diversion is not causing major issues, McClain said.  

“What we’ve seen in Europe is a change from roughly 30 percent last year of American exports going into Europe, that’s now at 60 percent. And what that means is other regions like Asia in particular are it’s offsetting those supplies that we’d be directed would have typically gone to Asia. And the same with South America,” she said.  

However, with parts of Southeast Asia reimposing coronavirus-related restrictions, much of the usual demand for LNG has been blunted in those regions, she added.   

Environmental groups aren’t happy   

Advocates for renewable energy have called the Ukraine crisis, and the corresponding spike in gas prices, a further incentive to transition off of fossil fuels. However, many of them have been dissatisfied with the emphasis on natural gas, which is predominantly methane, one of the most damaging greenhouse gases.   

Methane is about 25 times more effective at trapping heat in earth’s atmosphere as carbon dioxide, and many advocates have pointed to cutting methane as a quicker way to reduce emissions.   

“With the current international conflict and escalating energy prices, it is time for the administration to move away from fossil fuels, including halting LNG exports and infrastructure buildout,” Peggy Shepard, co-founder and executive director at WE ACT for Environmental Justice, said in a statement after the U.S. and Europe announced the deal.  

“Building even more LNG export terminals would lock in fossil fuel infrastructure and pollution for decades to come.”   

Cahill, however, said this could be an opportunity to advance emissions-reduction goals.   

“A lot of people in Europe don’t want to buy more gas. But the reality is they need new gas supplies to reduce their dependence on Russia,” he said.  

“It could actually be a win-win if they find alternatives to Russian gas that are lower emissions intensity. And so the challenge for the U.S. LNG sector is can you produce cleaner gas here? Can you cut methane emissions and CO2 emissions?”