Europe LNG support could deepen fossil fuel dependence

The European Union is considering direct financial support for LNG projects abroad, potentially deepening its dependence on imported gas from the U.S., even as the Trump administration has taken a hostile position towards Europe that has damaged the Trans-Atlantic alliance.

A draft document written by the European Commission, seen by Gas Outlook, envisions direct support from the European Union for longer-term LNG contracts and aggregating purchases so that the European bloc can leverage their purchasing power to secure better terms from LNG exporters. The strategy says the EU could provide low-interest loans to private investors and potentially even make direct investments into LNG projects abroad. The leaked document was first published by Politico, and is expected to be made public next week.

The document, called the “Action Plan for Affordable Energy,” is part of the EU’s response to high energy costs, which skyrocketed following Russia’s invasion of Ukraine. In 2022, Europe spent more than 600 billion euros on fossil fuel imports, up from 163 billion in 2020.

To replace Russian gas, Europe has become increasingly dependent on LNG, particularly from the U.S., but the expense has weighed on the European economy. Even with access to LNG imports, heavy industry in Europe has struggled to remain competitive, with job losses spreading around the continent.

Indeed, the draft document prepared by the European Commission identifies Europe’s dependence on imported fossil fuels as a principal cause of high energy costs and price volatility.

“Europe’s reliance on imported fossil fuels causes energy price volatility and higher supply costs, while making the EU more vulnerable to external pressure and global market uncertainty,” the draft document says.

But expanded EU support for imported LNG would only exacerbate the very problems associated with import dependence that the strategy is meant to address, experts say.

“The EU has seen it time and time again: gas is a volatile, unreliable source of power that we predominantly purchase from volatile, unreliable countries,” said Linda Kalcher, director of Strategic Perspectives, a Brussels-based think tank. “Putting funding into overseas infrastructure weakens our energy security and can cause further price hikes for companies and households — which would completely defeat the purpose of the plan.”

The Action Plan suggests exploring longer-term LNG deals. Much of the global LNG trade is underwritten by 20-year contracts between buyers and sellers, which give financiers the confidence to lend and invest, but shorter-term deals have become more commonplace as customers eye the rapidly unfolding energy transition. European companies have been especially reluctant to sign 20-year contracts in recent years, knowing that gas consumption is in structural decline.

The volume of EU LNG imports declined by 19 percent in 2024, according to a recent report from the Institute for Energy Economics and Financial Analysis. And by 2030, EU import capacity will be three times higher than actual EU LNG demand, raising the prospect of severely under-utilised LNG import terminals across Europe.

Against that weakening backdrop, it’s not clear that even with EU support that European companies will want to lock themselves into 20-year deals.

At the same time, supporting LNG would work at cross-purposes with a constellation of separate EU policies aimed at accelerating the energy transition and breaking reliance on oil, coal, and gas.

The EU strategy itself suggested the risk of slowing the energy transition. “Stalling halfway on the path to decarbonisation places a burden on our economies and our industrial capacity,” the document states.

Better to accelerate the push to renewables. “If we really want affordable energy for Europe, the time to invest in homegrown renewable energy is now,” Kalcher said.

Tariffs and the Japanese model

The EU document referred to Japan’s LNG strategy as a model.

Japan is a powerful player in the global LNG trade, going well beyond simply being one of the world’s largest consumers of LNG. Japanese finance — both public financing institutions and private banks — support import and export terminals around the globe. Japanese trading houses sign long-term supply agreements with exporters, with the intention of reselling LNG cargoes at a markup. Japanese shipping companies have a lucrative business in LNG tankers. There are even Japanese gas turbine manufacturers that support the construction of gas-fired power plants in other countries in order to expand their sales.

For instance, the Japan Bank for International Cooperation and Nippon Export and Investment Insurance, two public financing and insurance institutions, provided billions of dollars of support to Freeport LNG in Texas.

The European Commission sees the Japanese model as something to emulate. There is little detail in the strategy document about how the EU could pull this off, and many questions remain. Global gas markets expert and former BP head of gas analysis Anne-Sophie Corbeau was skeptical the new strategy would be beneficial, questioning in a LinkedIn post whether copying the Japanese LNG buying model would leave Europe better off and pointing to the lack of incentive for private companies investing in new build liquefaction capacity overseas.

“Who exactly is going to invest? European utilities are still commercial companies, and not that many are state-owned,” said Corbeau. “IOCs are only faithful to their shareholders and not to Europe’s security of supply.”

She added, “What [is] a reliable LNG supplier? Qatar, which not so long ago was threatening to stop exporting LNG to Europe if fined under the EU’s new Corporate Sustainability Due Diligence Directive? Australia, where 1.5 years ago, workers threatened to stop LNG plants?”

With European LNG demand declining, it is curious that it would want to intervene in markets abroad to prop up LNG projects. Even at a smaller scale, direct EU support for LNG abroad would mark a dramatic departure from current strategy. And it would threaten Europe’s climate progress.

“If confirmed, this would be a disastrous move for Europe as it will further shift away from real attempts at reducing emissions and phasing out fossil fuels, making the uptake of renewables an even more uphill battle,” the Center for International Environmental Law and ClientEarth said in a joint statement.

There is another motive at play. While not explicitly naming LNG from the U.S., the goal of the European Commission’s LNG strategy appears at least in part aimed at heading off a trade war with the Trump administration. The EU has hired Republican lobbying firms in Washington to gain access and influence, and has indicated buying up American gas to mollify President Trump.

But Europe’s support for the expansion of LNG risks tying itself to an increasingly volatile and unreliable partner. The Trump administration is in the midst of undoing more than 80-years of close relations between the U.S. and Europe. Trump has turned the U.S. government’s position towards Russia upside down, and is negotiating the end to European war without much of Europe at the table. Trump has threatened the EU with an array of tariffs, and supported far-right movements across the continent.

Vice President J.D. Vance’s recent speech at the Munich Security underscored the growing hostility from Washington towards European capitals. One German politician told the FT, “That was a direct assault on European democracy.”

The sudden thaw between Moscow and Washington puts Europe in a bind. The EU is holding off on a Russian LNG ban as it negotiates with Trump, but supporting LNG in the U.S. risks replacing one dependency on a hostile government with another.