EU energy policy caught between US gas and Chinese green technology: Bousso

Since the Russian gas phaseout, EU dependence on US LNG has increased.

China dominates the EU's renewable energies supply chain

EU-US trade deal sets unrealistic energy target

Ron Bousso

LONDON, 31 July - The European Union’s extravagant pledge to purchase $750 billion in U.S. Energy by 2028 could increase the bloc’s already excessive dependence on American Gas, at the same time that it is becoming increasingly dependent on Chinese technology for its energy transition.

Under the new trade agreement with Washington, the EU has committed that it will increase its purchases of U.S. natural gas, coal and oil from $75 billion in 2020 to $250 billion annually over the next three.

Eurostat data shows that the U.S. will account for 50% of EU's imports of liquefied gas in 2024. It also accounts for 17% of imports of oil and 35% of imports of coal.

The U.S. exports the most LNG in the world, and this fuel is super-chilled.

The promised purchases are not only unlikely, but also downright unrealistic, due to the huge volumes involved, and the fact the EU's energy trade is determined primarily by the market, not centralized buying.

The greater concern is that increased purchases will increase Europe's dependence on U.S. power at a time when it is already precarious.

DEPENDENCE RISKY

Europe is heavily dependent on LNG imports due to its drastic reduction in Russian pipeline gas purchases after Moscow's invasion into Ukraine in 2022. Before that, Russia was responsible for over 40% of European gas purchases.

Brussels has a plan to phase out all Russian energy imports in 2027. This ambitious but achievable goal will increase the demand for LNG from the U.S.

It is less risky to rely on an ally who is democratic and Western than to bind oneself with a power that is authoritarian, but there are still risks.

One of the reasons is that the Trump administration's erratic policies and bullying behavior may cause European leaders to question the sustainability of any U.S. agreement.

Moreover, a large portion of LNG is produced along the U.S. Gulf Coast which is at risk from extreme weather events like hurricanes, heatwaves and floods. These disasters can lead to severe and abrupt supply disruptions.

The price of natural gas in the United States could also rise dramatically over the next few years, as the domestic demand increases, especially given the massive power requirements for artificial intelligence.

The U.S. Energy Information Administration predicts that Henry Hub gas will double in price between 2024-2026, to $4.40 for every million British Thermal Units. These price increases could make American LNG less competitive against other sources.

CHINESE WALL

Energy crisis following the invasion of Ukraine by Russia taught Europe two hard lessons. Don't be too reliant on a single energy provider, and reduce your reliance on fossil energy, especially with Europe's inadequate and declining domestic production.

In order to address this concern, the bloc has increased investments in technologies such as renewables, nuclear, and battery storage.

According to a report released by the International Energy Agency, European investments in clean energy are expected to double in size from 10 years ago to $494 billion by 2025.

Solar and wind power generated around 20% of the total energy consumed in the region and half of its electricity last year.

However, the rapid growth of renewables is not without its own risks. The green energy supply chain, which is dominated by Chinese tech, has its own dependence issues.

Solar energy is Europe's fastest-growing renewable source. Around 80% of solar photovoltaic panel production in the EU comes from China. It does this at a very low cost which has hindered Europe's attempts to expand its domestic manufacturing.

China is the dominant producer of raw materials such as cobalt, nickel and lithium that are essential to storage batteries and wind turbines.

No Good Choices

Diversifying EU sources of renewable technologies and essential minerals is crucial for the bloc’s energy security. However, this will take many years to achieve.

Theoretically, cooperating on this front with the U.S. could be beneficial. However, not if Washington takes advantage of its dominant position in order to extract more concessions from Europe while offering little else.

The EU is caught in the middle of two geopolitical forces.

The European Union's double concerns about fossil fuels and its increasing dependency on U.S. gas, as well as the over-reliance on China in terms of renewable energy, may eventually cause European leaders to turn back to fossil fuels, if they are worried about rising energy costs.

The pace and success of EU energy policies will be determined by the balance between energy security and political reality in the next few years. If the terms of the U.S. recent trade deal is any indication, then the EU's energy policies are not off to a good start.

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(source: Reuters)