Europe Looks to Shore Up Gas Supply

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Though Europe has filled its reserves of natural gas for this winter, the clock is already ticking to secure energy for the coming years, which are expected to remain dogged by threats of severe shortages.

The European Union's gas storage is around 95% full, and many analysts say the continent might avoid an energy calamity this winter. But procuring gas for coming winters is widely anticipated to become more difficult for European countries now that they are mostly cut off from Russian supplies and global competition is growing for finite cargoes of liquefied natural gas.

There is little additional LNG coming to the market until around 2026, when planned projects in the U.S. and Qatar come online, and Europe likely will compete for tight supplies over the next few years.

Some companies in Germany, Europe's manufacturing engine, are worried about having enough energy for the latter part of the decade. German companies including chemical producer BASF SE and bailed-out utility Uniper SE have held talks in recent weeks with America's LNG exporters and others about potential gas-supply deals likely beginning after mid-decade, according to people familiar with the discussions.

After Russia's invasion of Ukraine, some European companies signed contracts for U.S. LNG. Now businesses that rely on gas are saying the continent will need more of it for years to come.

The negotiations are indicative of elevated energy-security concerns, the people said, but are complicated because while many in Europe seek gas for five to 10 years, some company and government officials are reluctant to sign longer-term supply contracts. Germany and other European nations have set ambitious targets to reduce fossil-fuel consumption dramatically, and companies are worried they could be on the hook for gas they no longer need.

BASF and Uniper are looking for ways to source more natural gas, including through LNG, spokespersons for the companies said.

German government officials are monitoring the discussions about gas supplies, including separate talks with the Norwegian oil-and-gas company Equinor ASA, at times suggesting companies that exporters should contact, some of the people familiar with the discussions said.

A spokeswoman for Germany's Economy and Climate Ministry said gas purchases are the responsibility of companies.

Equinor Chief Executive Anders Opedal said in a recent interview: "We are working closely with German industry to find common ground for potential future investments," in oil and gas as well as low-carbon energy.

EU officials have proposed forming a collective of European companies to coordinate gas-deal talks and jointly purchase fuel, thus avoiding bidding against each other for the same gas. In October, German Finance Minister Christian Lindner expressed support for the idea. But some company executives and government officials doubt such a program would work because of gas-market complexities and differing needs among countries, and some companies are going it alone in negotiations.

"We are not totally convinced about the benefits and advantages that can be achieved by bundling the gas procurement on a European level," said a spokeswoman for RWE AG, a German utility that signed a nonbinding 15-year-deal with the U.S. LNG exporter Sempra Infrastructure in May. She said RWE is urging government officials to support long-term gas contracts.

German companies aren't alone in seeking to secure gas. Countries including France and the U.K. face threats of power shortages, and U.S. LNG executives have been calling on European governments looking for deals. A subsidiary of the British chemical company Ineos Group AG signed a nonbinding supply agreement with Sempra earlier this year, as did the Polish energy company Polskie Gornictwo Naftowe i Gazownictwo SA.

A spokesman for the U.K. government said it is working with domestic and international suppliers to explore contracts that could increase the security of energy supply.

Political opposition remains in some corners to long-term gas deals that some say could derail climate goals aimed at lowering greenhouse-gas emissions. "It's difficult to see how they're compatible with decarbonization plans," said Jill Duggan, executive director for Europe at the nonprofit Environmental Defense Fund.

German officials previously said they expect the country's natural-gas demand to peak around 2030, then give way to more renewable energy.

The tension between Europe's immediate energy needs and long-term climate aspirations are creating a complicated market for European buyers as well as U.S. sellers. Developers of LNG projects need to sign long-term contracts with customers to finance plants that convert gas into liquid for export.

Some Europeans are looking for ways to satisfy exporters while maintaining climate objectives. One option being considered is to sign long-term deals and resell a portion of the gas in foreign markets in later years, which most U.S. LNG contracts allow, according to company executives, bankers and others briefed on the talks.