The election of Donald Trump presents both some familiar and some new challenges to the EU’s energy relationship with the United States.
The 47th president-elect has long been a fossil fuel enthusiast who has espoused the mantra ‘drill baby drill’ and who does not believe in man-made climate change. His second presidential term will begin with European industry at a major competitive disadvantage, as industrial energy prices in Europe are on average three times higher and gas prices five times higher than those in the US. The additional success of the Inflation Reduction Act (IRA) has put further pressure on European green tech companies, who cannot compete with its generous subsidy regime.
Against this backdrop looms the threat of tariffs on European exports which look likely to drag Europe’s energy into the equation. The Commission President recently suggested that the EU should import more American LNG to rebalance trade flows. While this short-term approach may reflect the EU’s perceived need to placate Trump, in the longer-term Europe is building underlying strengths which should give it considerably greater bargaining power over the course of Trump’s term in office.
In the immediate term, Ursula von der Leyen’s suggestion to increase US LNG imports aligns with a number of strategic goals, including reducing reliance on Russian gas suppliers. Despite considerable diversification of supplies away from Russia, the latter remains the EU’s third-largest supplier of gas and second-largest supplier of LNG specifically. Of the 42.9 bcm of gas it exported to the EU in 2023, 18 bcm was LNG. In the first half of 2024, this volume actually increased rather than decreased, with Western European countries such as Spain, France and Belgium importing between 31% and 43% of their LNG from Russia. A diversification of LNG suppliers away from Russia in parallel with a tightening sanctions regime should remain a priority. With American suppliers ready to pick up the new demand, this would not jeopardise security of supply. Meanwhile Central European states with strong ties to the US could also look to diversify their piped Russian gas supplies, especially as considerable new LNG regasification capacity comes online in the coming years. If this also helps rebalance trade, then this is surely a win-win.
So far, so strategic.
However, the longer-term goal of genuine European energy security will not be achieved simply by substituting Russia gas with American LNG. As discussions rage about European industrial competitiveness, reliance on imported American energy will only add some expensive fuel to the fire. Europe currently has gas prices that are five times more expensive than across the Atlantic. This gap can never be closed by continuing to import fossil energy from outside the Union, given the structural costs involved in LNG production. There is also a risk of falling into another dependency, given Donald Trump’s call for global ‘energy dominance’. This is particularly concerning as the US already supplies almost 50% of the EU’s LNG imports.
The EU’s reliance on expensive imported energy undermines its global competitiveness, especially at a time when its economy is struggling. This cannot be a long-term solution.
If played right though, the cards could be tilted in Europe’s favour.
The energy transition is beginning to bear fruit as structural gas demand in the Union has likely already peaked and is set to begin first a gradual and then a precipitous decline. Concerns are now growing over stranded LNG regasification assets and delays or cancellations of new projects rather than over limited capacity in the system. Under the RePowerEU plan, European gas demand should fall by 52% by 2030 while a 90% decarbonisation target would reduce it by a further 84% by 2040.
In tandem with the fall in demand for gas, there should be a rapid shift towards electrification powered by renewable energy generated on European soil or in its seas. True energy security is in sight as Europe finally wrestles back domestic control of its energy supplies. An accelerated transition towards a more electrified future will only serve to turbocharge Europe’s energy resilience.
Europe, therefore, could be much more bullish in its energy relations with Trump 2.0. True, in the short term, American gas can serve to replace the energy that finances the Russian war machine. But this should not come at the expense of the energy transition. The transition promises long-term energy security for European citizens, free from global price shocks, and ensures that their energy supply does not depend on the geopolitical whims of others. While using American LNG as a short-term bargaining chip has its merits, it will not address the deeper challenges facing European industry and may only add to the uncertainty for European citizens.
As Trump’s term progresses, and provided European leaders continue to accelerate the transition towards an electrified green economy, energy may even prove to be a bargaining chip in trade negotiations. A global LNG glut is expected in the coming years as supply outpaces demand, which will put price pressure on US producers moving towards 2030. The EU, as one of the world’s largest LNG consumers, could further leverage its position in tariff negotiations with the Trump administration.
By accelerating the energy transition, Europe can exercise greater control over its energy security. This would put it in an important position of strength should trade wars – and physical wars – escalate.
