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Trump’s plan for US LNG in Europe to face reality check

30 July 2018
Import-Export
energynomics

President Donald Trump’s plan for “vast amounts” of US liquefied natural gas (LNG) to be sold to the European Union after trade talks with its top representatives faces a reality test.

After a meeting at the White House with European Commission President Jean-Claude Juncker on Wednesday, Trump said the EU would also buy more US soybeans and work with Washington to cut other trade barriers to zero. “European Union representatives told me that they would start buying soybeans from our great farmers immediately. Also, they will be buying vast amounts of LNG!,” Trump wrote in a Tweet.

Juncker said the EU would build more terminals to handle America’s LNG, according to Euractiv.com. It appeared that a major LNG deal between the trading partners had been struck. In reality, three-quarters of Europe’s existing import facilities lie empty while demand for US LNG on the continent remains limited.

The most lucrative markets for US LNG are in South and Central America, India and the Far East, with Europe near the bottom of the pile given its relatively low prices and ample supplies of gas via pipelines from Russia and Norway.

At the recent NATO summit, Trump blasted Germany for its plan to build the Nord Stream 2 gas pipeline. Richard Morningstar, a veteran EU diplomat, had warned that Nord Stream 2 would kill the US strategy to export LNG to Europe. Global gas price signals determine LNG trade flows, Royal Dutch Shell Chief Executive Ben van Beurden said on Thursday. “Will US LNG reach Europe? Yes, but only if there is an arbitrage opportunity that makes sense,” he said.

Politicians have little sway over this. The EU applies zero tariffs on US LNG imports, so cutting them is not an option to boost trade in any future US-EU talks. Europe’s declining domestic production of gas from the North Sea, Netherlands, Germany and Norway leaves a growing gap for Russia and potential LNG suppliers in the United States to exploit. EU gas production will halve by 2040, the International Energy Agency says.

By then, 84% of gas will be imported against 71% in 2016, it says, although it could be less if green energy expands faster and energy efficiency gains reduce the need for gas. Trump told reporters on Wednesday that Europe would be a massive buyer of LNG to diversify its energy supply – “And we have plenty of it.”

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