California Awaits European Union Actions on Russian Natural Gas Dependency

The Ukraine war could impact California’s progress toward its economy-wide net zero emissions by 2045 goal.

California policymakers and utilities are committed to the mid-century goal, but the global energy market shift in support of Europe’s escape from Russian natural gas dependence could be an obstacle.

State regulators and planners are not accounting for the natural gas market’s structural change, Center for Energy Efficiency and Renewable Technologies Executive Director V. John White told Current.

The world is seeing “a significant increase” in the use of fossil fuels for power generation and both Europe and Asia are “desperate for reliable sources of natural gas,” said Patricia Kakridas, spokesperson for Sempra, the San Diego-based parent of subsidiary SoCalGas , the biggest regulated U.S. natural gas utility. Sempra is planning to provide Europe with “abundant supplies” by 2030, she said.

Market data shows skyrocketing demand for liquified natural gas processed at U.S. terminals and transported by tanker to meet European needs. A BP-chartered LNG tanker headed for Asia captured the moment’s intensity by U-turning in the Pacific on April 1 and paying a second $1 million Panama Canal toll to get its cargo to Europe, according to shipping market watchers .

An estimated two-thirds of all U.S. LNG cargoes are now headed for EU regasification terminals, and "every molecule that can escape this country as LNG is being exported," Florida Municipal Power Agency General Manager and CEO Jacob Williams told this reporter . Though that may increase prices and prevent emissions reductions, U.S. fossil fuels “can take money out of Putin's hands," he said.

Sempra subsidiary Sempra Infrastructure Gulf and Pacific coast LNG export terminals and the U.S.’s abundant U.S. natural gas can play a “critical role” in meeting new LNG commitments to Europe, Kakridas agreed. And with increased natural gas production and new infrastructure to export it, “the U.S. can keep prices low here at home while also helping our allies,” she said.

Europe can reduce Russian natural gas imports by two-thirds through accelerated deployment of renewables and energy efficiency, and expanded building electrification, a March 23 analysis by independent European researchers found . But to avoid longer-term worsening of the climate crisis, EU leaders must avoid new infrastructure investments to deliver LNG, the researchers said.

Accelerated clean energy investments and tapping into spare capacity in Europe’s existing infrastructure can meet the need, said analysis co-author and Regulatory Assistance Project Senior Advisor Bram Claeys. That is critical because new LNG import terminals or natural gas pipelines would keep fossil fuel generation online for decades, he added.

Threat of new California natural gas infrastructure

Any push by fossil fuel advocates for new natural gas infrastructure in California represents a similar threat, CEERT’s White said. Building new natural gas assets will either lengthen the life of carbon-emitting generation, impeding California’s climate effort, or increase state electricity rates to pay off infrastructure costs made less and less necessary by progressively stringent climate goals, he cautioned.

The Henry Hub natural gas spot price averaged $4.69 per million British thermal units in February and $4.90/MMBTU in March, the U.S. Energy Information Administration reported April 12. But the NYMEX futures price hit $6.68/MMBTU on April 12 and many expect it to keep rising.

With the 2022 weather forecast and the Biden administration's pledge to deliver more LNG to the EU this year , supply-demand dynamics could drive the price to $8.50/MMBtu, Natural Gas Intelligence reported April 8 . Renewables will help, but Europe will need the natural gas, and U.S. LNG will be vital , energy market experts agree.

Major LNG producer and exporter Sempra has seen “extreme interest” in its capabilities since the war began, CEO Jeffrey Martin said during a Feb. 28 earnings call . “We wish we could meet all the demand,” he added.

Subsidiary Sempra’s Cameron LNG export facility in Louisiana is fully operational, Kakridas reported. Its Energia Costa Azul LNG facility in Baja California, Mexico, will be operational in 2024 and new projects are in development in Louisiana, Texas, and Mexico. A March 31 memorandum of understanding with multinational energy giant TotalEnergies added financing for the Mexico project.

Despite questions about its carbon and methane emissions , today’s global energy market has become like “three-dimensional chess,” U.S. Energy Association Executive Director Sheila Hollis told Current . Asian LNG supply is going to Europe and U.S. coal is going to Asia.

But the billions of dollars needed for new U.S. LNG export facilities, pipelines, and tankers require “policy and regulatory support assuring the assets will not be stranded,” Hollis said. And even for Californians with climate concerns, the Ukraine war’s impacts on global energy market show it is important “to keep an open mind about what fuel sources may be necessary,” she added.

California natural gas supplies are constrained by having limited interstate pipeline access and a “negative regulatory environment” for natural gas, OTC Global Holdings Senior Vice President Campbell Faulkner told Current . Now it is competing for supply with Europe and Asia, and even at higher prices may not be able to completely fill the storage it could need for the coming months, he said.

California’s system operator has managed reliability despite recent threats but low-priced, stored natural gas has been a key resource, Faulkner said. CAISO will try to import power from other Western states, but with drought-induced hydropower shortages, high prices, and little spare regional capacity, it could be “an expensive summer and a hard expensive winter,” he cautioned.

Europe’s next two years will be difficult even as it increases LNG imports, renewables, and energy efficiency , RAP’s Claeys said.

Ramping up efficiency and solar

But savings from energy efficiency can provide “much bigger savings than the European Commission estimated ,” and both large scale and rooftop solar can be deployed much faster, Claeys said. Along with maximizing the use of Europe’s existing LNG assets and capacities, it can ramp up to complete independence from Russia by 2025, he added.

Because Europe will not be totally independent by next winter, it faces “a harsh reality,” he said. Behavioral changes and energy rationing may be necessary, but this war is getting ever more atrocious to watch and Ukrainian refugees are bringing it close to home, increasing the commitment to make this “a defining moment of European solidarity,” Claeys added.

Those same strategies will be key to protecting California’s climate effort by avoiding capital expenditures for new natural gas infrastructure, CEERT’s White said. Though regulators and planners don’t recognize the risks in new natural gas market price dynamics, they need to recall that it took a decade to pay off costs for stranded natural gas assets after the 2000-01 energy crisis , he said.

California policymakers will likely expand LNG export capacities to meet global demand, but existing natural gas infrastructure is adequate and the oldest, dirtiest plants can be phased out, he added. “That will put upward price pressure on natural gas, but the response should be to rapidly reduce natural gas demand and allow it to go Europe.”

The answer is not a new emphasis on LNG but a focus on building “a diverse portfolio of resources with reliability as the crucial ingredient,” White added. “That means build more clean energy, more transmission, and more demand side resources and demand response capabilities sooner.”