Liquefied natural gas (LNG) is natural gas, predominantly methane, converted to liquid form for ease of storage or transport.
The liquefaction process involves cooling the gas to around -162 °C and removing certain impurities, such as dust and carbon dioxide. As a liquid, LNG takes up around 600 times less volume than gas at standard atmospheric pressure, which facilitates its transportation over long distances without the need of pipelines, generally in specially-designed ships or road tankers.
When it reaches its final destination, LNG is usually re-gasified and distributed through gas networks, just like gas from pipelines. LNG is also increasingly used as an alternative fuel for ships and lorries.
Importance of LNG for the EU's security of supply
Ensuring that all EU countries have access to liquid gas markets is a key objective of the EU's energy union strategy. LNG can contribute to enhancing the diversity of gas supply and improving energy security in the EU. Today, countries in Europe that have access to LNG import terminals and liquid gas markets are far more resilient to possible supply interruptions than those that are dependent on a single gas supplier.
Cargoes of LNG are available from a wide variety of different supplier countries worldwide, and the global LNG market is undergoing dynamic developments.
Since the end of 2021, monthly gross LNG imports in the EU greatly increased due to the exceptional situation of the gas market and the necessity to refill gas storages. From the beginning of 2022, the EU has imported 98 bcm of LNG. This is 39 bcm more than at the same point in 2021. Between January and September 2022, the EU imported more than in the entire all-time record year (2019).
Consumption and demand
Natural gas currently represents around a quarter of the EU's overall energy consumption. About 26% of that gas is used in the power generation sector (including in combined heat and power plants), and around 23% in industry. Most of the rest is used in the residential and services sectors, mainly for heat in buildings.
The EU's gas demand is around 400 bcm. As domestic gas production is declining, and due to the current energy crisis, the EU is making efforts to diversify its gas supply, reduce consumption across all sectors, and accelerate the roll-out of renewable energy. Each step to phase out Russian fossil fuels brings the EU closer to a more secure and sustainable energy supply, in line with the objectives of the European Green Deal and the EU's 2030 energy and climate targets.
Production and imports
Around 10% of the EU's gas needs are currently met by domestic production. The rest is imported by pipeline or via LNG. Pipeline gas imports have been dominated by Russia in the past years (around 40% of all pipeline imports). However, following the Russian invasion of Ukraine in February 2022 and its weaponisation of energy supply, the Russian share of pipeline imports has fallen dramatically, with Norway being currently the most important source of pipeline gas imports to the EU.
Between January and September 2022, the largest LNG exporters to the EU were the United States (44%), Russia (17%) and Qatar (13%). The United States is playing an increasingly important role in the EU gas supply. At the end of March 2022, the EU and the US adopted a common declaration on increasing LNG trade, and expressed interest in further increasing EU LNG imports from the US by 15 bcm in 2022 compared to the previous year. This goal was reached at the end of August 2022, 4 months in advance of planning.
The largest LNG global exporters in 2022 are the United States, Australia and Qatar. Global liquefaction is set to further increase as new plants in the United States and Australia will come on stream over the next few years.
The EU's overall LNG import capacity is significant (around 157 billion cubic metres in regasified form per year) – enough to meet around 40% of total current gas demand. However, bottlenecks and infrastructural limitations exist in some regions around Europe. Several EU countries are increasing their LNG imports capacity by means of accelerated investments in LNG terminals.
Based on the list of EU's Projects of Common Interest' (PCIs), the LNG strategy includes a list of key infrastructure projects which are essential to ensure that all EU countries can benefit from LNG.
With any new infrastructure, commercial viability is very important. For a LNG terminal, its utilisation across a whole region, or the choice of lower costs and more flexible technologies such as floating storage and regasification units (FSRUs), may considerably improve its viability. Regasification terminals in EU countries have an annual nameplate capacity determined for environmental reasons. Divided throughout the year, the weekly nameplate capacity can be exceeded in periods of intensive LNG inflows.
LNG terminals, as other energy infrastructure, should be financed through end-user tariffs (investment is paid for by all gas consumers as part of their monthly gas bill); in some cases, gas companies bear the costs of construction (the investment is borne by a number of companies in exchange for the right to use the terminal through long-term capacity booking). But even with a sound business case, financing may still be a challenge in some cases.
For projects that are particularly important for security of supply, EU funds, such as the Connecting Europe Facility, could potentially help fill the financing gap. EIB loans and the European Fund for Strategic Investments may be other sources of long-term financing.
- Factsheet: EU-U.S. LNG TRADE U.S. liquefied natural gas (LNG) has the potential to help match EU gas needs (February 2022)