The EU’s Energy Security Problem With Russian LNG

While the REPowerEU plan laid out numerous goals across multiple end markets for eliminating the use of Russian pipeline gas, the European Union has no such plan for Russian liquefied natural gas, which we think will come as a surprise to investors. The EU has reduced Russian pipeline gas imports by over 80% in a very short time, but Russian LNG imports have surged recently and now make up 50% of overall Russian gas imports to the EU. Continuing to increase the use of Russian LNG threatens to undermine the gains and goals achieved via the REPowerEU plan in reducing the use of Russian pipeline gas imports.

If Russian LNG imports are not addressed, the EU will still rely somewhat on Russian energy imports, reducing its overall energy security. We think the EU needs to pursue all of its options, including political efforts, U.S. LNG contracts, and potentially freed-up U.S. LNG volumes from “Fast LNG” efforts from New Fortress Energy NFE, which is deploying a novel model that should be of interest to the EU.

While the EU to date has not been heavily involved in signing new contracts for U.S. LNG, instead relying on spot cargoes, we think there are still projects available that are seeking contracts to move forward with a final investment decision. There are about 46 million metric tons per year in permitted projects that yet have to obtain a final investment decision, well in excess of the 14 mtpa in Russian LNG imports to the EU that currently need to be displaced. While Cheniere has long been perceived as the standard bearer for U.S. LNG, we think New Fortress expands the available universe for investors. We would look to acquire both stocks at a deeper discount to our fair value estimates.