The 2022 outbreak of war between Russia and Ukraine revealed the importance of energy security in bolstering Moscow’s geopolitical power in Europe. The continent, which imported about 46 percent of its gas needs from Russia in 2021, found itself in a vulnerable position as it sought alternative sources.
This presented an opportunity for the US to replace Russia and become the primary supplier of natural gas to Europe at significantly higher prices, resulting in large profits at the expense of its European allies. According France-based data and analytics firm, Kpler, in 2022 the EU imported 140 billion cubic meters (BCM) of liquefied natural gas (LNG), an increase of 55 BCM from the previous year.
Around 57.4 BCM of this amount (41 percent) now comes from the US, an increase of 31.8 BCM, 29 BCM from Africa (20.7 percent) – mainly from Egypt, Nigeria, Algeria and Angola – 22.3 BCM from Russia (16 percent), 19.8 BCM from Qatar (14 percent), 4.1 BCM from Latin America (2.92 percent) – mainly from Trinidad and Tobago – and 3.37 BCM from Norway (2.4 percent).
In 2022, France was the leading importer of LNG in Europe, accounting for 26.23 percent of total imports. Other significant importers included Spain (22.3 percent), the Netherlands (12.65 percent), Italy (11 percent), and Belgium (10.42 percent).
These countries, along with Poland (4.7 percent), Greece (2.9 percent), and Lithuania (2.31 percent), imported over 90 percent of LNG exported to Europe at prices higher than Russian pipeline gas. It is worth noting that upon arrival, LNG is converted back to its gaseous state at receiving stations in Europe before being distributed to countries without such infrastructure, such as Germany.
Europe was able to reduce its reliance on Russian pipeline gas from 46 percent to 10 percent last year. This decrease, however, came at a high cost to the economy, as the price of gas rose to $70 per million British thermal units (Btu), up from $27 before the Ukraine war. By the end of the year, the price had fallen to $36, compared to $7.03 in the US.
This price disparity has been hard to stomach. French President Emmanuel Macron went public with his annoyance: “American gas is 3-4 times cheaper on the domestic market than the price at which they offer it to Europeans,” criticizing what he called “American double standards.”
High gas prices have made Europe an appealing destination for gas exporters from around the world, with increased interest from countries such as Egypt, Qatar, Turkey, UAE, Iran, Libya, Algeria, and those bordering the Mediterranean basin, as they either export gas, or possess gas but lack infrastructure.
To replace the cheaper Russian pipeline gas, European countries are being forced to seek out the more expensive LNG. The EU and Britain are working to increase LNG import capacity by 5.3 billion cubic feet (BCF) per day by the end of 2023, and by 34 percent, or 6.8 BCF per day, by 2024.
Can West Asia, North Africa meet Europe’s gas needs?
The West Asia and North Africa region has the potential to partially meet Europe’s gas needs due to its geographic proximity and the presence of countries with large gas reserves and export infrastructure, such as Palestine/Israel, Algeria, and Egypt. However, there are several obstacles that must be considered.
For example, Egypt’s high production costs and increasing domestic consumption limit its export capacity. Additionally, Europe would need to be willing to pay a higher price than the Asian market for Egyptian gas.
Israel, on the other hand, has seen an increase in gas exports to Europe in the first half of 2022 after the pipeline to Egypt via Jordan was restored in March, but it is unlikely to significantly increase exports in 2023 due to factors such as limited export capacity and high domestic consumption. Experts predict that Israel may export around 10 BCM of gas to Europe this year, similar to the amount exported in 2022.
Qatar is the only Persian Gulf emirate that has increased its gas exports to Europe for 2022. This is largely because Persian Gulf countries prefer to sell their gas to Asian markets, where they can garner higher profits due to lower shipping costs and longer-term contracts.
Last year, Qatar took advantage of the significant increase in gas prices to sell part of its shipments on the European spot market. According to the Qatari Minister of Energy, between 10 percent and 15 percent of Qatar’s production can be diverted to this market.
However, it may be difficult for Europe to attract Qatari gas away from the Asian market, especially as China is expected to recover its demand for gas in 2023. In a policy home-goal, western sanctions on Iran, which has the second-largest natural gas reserves in the world, impede the investment needed to increase Iranian production.
No real alternatives
Iran’s lack of infrastructure connecting it to Europe and high domestic consumption also affect its export capacity. According to a report by BP, Iran produced 257 BCM of gas in 2021, of which 241.1 BCM were consumed domestically.
With regards to Algeria, the main obstacle in increasing its gas exports to Europe is political tension with Morocco and Spain that led to the suspension of the Moroccan-European gas pipeline project, which can export 10.3 billion cubic meters of Algerian gas.
In the case of the UAE, despite having the seventh-largest proven natural gas reserves in the world, its production is not sufficient to meet the demands of the local market and it imports a third of its gas consumption from Qatar through an undersea pipeline. European countries are currently in talks with Abu Dhabi to accelerate work on gas projects and increase production.
As for Saudi Arabia, it consumes all of its gas production domestically and does not export any, with a total production of 117.3 BCM in 2021. There are also expectations for a significant increase in the demand for oil and coal in 2023. The World Bank reports that this is due to an increase in European countries’ reliance on these fossil fuels instead of natural gas. This increase in demand will keep oil prices high, allowing Saudi Arabia and other OPEC+ members to make large profits.
The dilemma of growing demand
The Paris-based International Energy Agency (IEA) predicts that global demand for natural gas will increase to 394 BCM this year, driven in part by Europe’s need to diversify its sources of gas away from Russia. And West Asia, with its significant reserves, remains a key region for Europe to tap into for this purpose.
The challenge remains in finding cost-effective ways to transport the gas from the region to Europe, which will necessitate building a pipeline connecting the Mediterranean Basin to the Old Continent.
Failure to do so will result in Europe continuing to pay a high premium for its energy security without achieving true independence. The alternative for Europe is to rely on LNG from the US. This gives Europe almost complete independence from Russian gas, but keeps it weak, obedient, and dependent on American energy supplies.