US-EU Trade Agreement Under Threat as LNG Imports Decline

Europe Rejects American Natural Gas Due to High Prices: Challenge to New Trade Agreement

In the past two years, the European Union (EU) has become the largest importer of U.S. Liquefied Natural Gas (LNG). However, last month, Europe rejected American LNG due to excessively high prices, creating problems for the recently implemented trade agreement.

Background of the US-EU LNG Relationship

The shift toward U.S. LNG stems from sanctions against Russia, including an import ban on Russian LNG set to take effect in 2027. This shift has been actively promoted by the second Trump administration. However, recent developments show that Europe is beginning to explore alternative supply sources due to pricing factors.

The $750 Billion Trade Agreement

In July of this year, U.S. President Donald Trump and European Commission President Ursula von der Leyen signed a trade framework agreement that would ensure preferential treatment for U.S. goods sold in the EU, particularly energy products. Von der Leyen committed on behalf of the 27 EU member states to purchase $750 billion worth of American energy products over three years.

This amount, equivalent to $250 billion annually, is a substantial figure. According to Reuters' Clyde Russell, this sum is sufficient to purchase all the oil and coal that the U.S. has available for export.

Pricing and Demand Challenges

According to a Reuters report this week, citing data from LSEG, in June, European gas buyers accepted less than half of the total U.S. LNG export volume. This was the first time in two years that Europeans purchased so little American LNG. The reason was pricing.

The European TTF gas reference price averaged $13.19 per million British thermal units (mmBtu) last month. Meanwhile, the Asian LNG reference price averaged $17.33/mmBtu - this is why most U.S. LNG exports go to Asia and Egypt, countries with urgent gas demand.

Europe's Gas Storage Situation

Interestingly, the EU also has urgent gas demand. The European Union concluded the recent heating season with significantly lower remaining gas reserves compared to the five-year average because the past winter was not as warm as the previous two winters. According to the Financial Times at the end of June, the bloc is facing its lowest gas reserves for the upcoming winter in 15 years.

The report indicates this shortage is due to the Middle East conflict and supply disruptions from Qatar. Natasha Fielding, an analyst at Argus Media, quoted by the Financial Times, stated: "Although the recently announced US-Iran deal has pushed gas prices down and hopes of Middle Eastern supply flooding the market are rampant, the longer we see constrained LNG supply, the lower European gas reserves will be going into winter and the greater the potential for price spikes."

Dependence on American LNG and Concerns

This creates a paradox: Europe needs to buy American LNG but has certain concerns. Many U.S. energy operators have reported that European gas buyers are avoiding long-term supply contracts, fearing the development of excessive dependence on a single supplier, essentially replacing dependence on Russia with dependence on the United States.

The Brussels authorities have similar concerns. Their major issue is the continued dependence on large suppliers, and the EU has committed to becoming even more dependent on this largest supplier. Meanwhile, European gas buyers have been stockpiling every Russian LNG shipment they can access before the import ban takes effect in 2027.

According to a warning from the Institute for Energy Economics and Financial Analysis last month, the EU will become dependent on the U.S. for up to 80% of its LNG imports, up from 58% last year.

Alternative Gas Sources and Barriers

Europe's dependence is not solely on LNG. The bloc also imports pipeline gas from Norway, Algeria, and Azerbaijan, but these sources are insufficient to meet demand, especially after the sabotage of the Nord Stream pipeline.

Moreover, the EU is actually preventing Norway from increasing its gas export capacity to the bloc. Brussels firmly opposes new gas drilling in the Arctic, where Norway has untapped resources.

Conclusion and Outlook

Until European leaders clearly determine their priorities and decide between becoming extremely dependent on a single gas supplier or diversifying local supply sources, the level of dependence will remain substantial. The dependence on U.S. LNG may be a necessary temporary solution, but it raises questions about Europe's long-term energy strategy and energy security in the context of climate change and geopolitical tensions.

The $750 billion trade agreement between the U.S. and EU on energy, particularly LNG, is facing practical challenges from European pricing strategies and supply diversification. The future of this energy relationship will depend on many factors, from market prices to the policies of both parties.

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