EU's green ambitions threaten its energy security as Qatar warns of LNG halt

Bloc faces a complex set of energy challenges, including a Trump presidency and compliance with strict regulations

The US emerged as the EU’s largest source of LNG following Russia’s invasion of Ukraine in 2022. Reuters

The EU’s pursuit of ambitious environmental goals is creating a potential conflict with its energy security needs, as a new law threatens to disrupt liquefied natural gas supplies from key exporters such as Qatar and the US.

Europe's new Corporate Sustainability Due Diligence Directive (CSDDD), which requires large companies operating in the bloc to ensure their supply chains do not harm workers or the environment or face stiff penalties, has drawn strong criticism.

“The EU is hellbent on harming its economy because of its militant adherence to climate change goals,” said Mamdouh Salameh, a global energy expert.

“This will be a real blow to the EU's energy needs, particularly at a time when US LNG supplies to the EU in 2025 are projected to decline due to rising domestic demand and declining gas production.”

The new CSDDD directive, which was approved this year, calls for fines of up to 5 per cent of a company’s global turnover for violators. The next step requires EU countries to incorporate it into national law and submit the relevant texts to the European Commission by July 26, 2026.

A year later, the rules will be applied to the first group of companies, following a phased approach, with full implementation in 2029.

Qatar’s Energy Minister Saad Al Kaabi on Sunday said the Gulf country would stop shipping gas to the EU if member states strictly enforced CSDDD. “If the case is that I lose 5 per cent of my generated revenue by going to Europe, I will not go to Europe – I’m not bluffing,” Mr Al Kaabi told the Financial Times.

State-owned oil and gas company QatarEnergy reported revenue of 188.5 billion Qatari riyals ($51.64 billion) in 2023 and accounts for roughly 13 per cent of the EU’s LNG imports.

Since 2022, QatarEnergy has also signed several long-term sales agreements with EU countries such as France, Italy and Germany.

While Qatar is unlikely to breach those deals due to legal implications and restrictions on cargoes' final destinations, it could divert spot LNG shipments to Asia, its largest market, experts said.

Such a move would affect LNG availability in Europe and drive up gas prices, while hindering the bloc’s attempts to diversify its supply sources.

“There is zero chance Qatar will ban EU shipments. Nevertheless, Qatar can decide to sell spot cargoes in Asia rather than Europe, and this would impact European gas prices,” said Ruchdi Maalouf, independent arbitrator and a former LNG executive.

"If it decides not to sell spot LNG in the EU, it will affect liquidity. The last time liquidity was affected in the EU was when Russia invaded Ukraine,” Mr Maalouf told The National.

US LNG uncertainty

Meanwhile, the EU's new methane regulations, which came into effect in August, also present difficulties when negotiating new contracts with US LNG suppliers.

The regulation aims to reduce emissions of the greenhouse gas from imported fuels, including LNG. The US is the largest emitter of methane from oil and gas operations, closely followed by Russia, according to the International Energy Agency.

The US has emerged as the EU’s largest source of LNG following Russia’s invasion of Ukraine in 2022. Last month, European Commission President Ursula von der Leyen said she discussed LNG exports in a phone call with US president-elect Donald Trump.

“We still get a whole lot of LNG via Russia, from Russia. And why not replace it with American LNG, which is cheaper, and brings down our energy prices,” Ms von der Leyen said at the time.

Europe imported a record 16.5 million tonnes of Russian LNG by mid-December, surpassing last year’s total of 15.18 million tonnes, according to maritime data analytics firm Kpler.

However, the EU's energy ties with the US could be strained by Mr Trump's increasingly combative stance towards allies.

Last week, Mr Trump said that the EU may face tariffs if the bloc does not reduce its growing deficit with the US by making large oil and gas purchases. The EU’s trade surplus with the US grew to €15.3 billion ($15.92 billion) in August, from €13 billion in the same period in 2023, according to official data.

“There have been indications from EU officials that they plan to work in securing more US energy going forward. So that will stay on the agenda,” said Giovanni Staunovo, strategist at UBS.

“Most of those energy purchases likely would be US LNG and would replace Russian gas, but it would come at a higher cost,” he told The National.

Some EU states, such as Slovakia and Hungary, still rely heavily on Russian gas transported through Ukraine. Discussions are continuing to keep Russian gas flowing beyond December 31, the day on which a transit agreement with Russia’s Gazprom is set to expire.

Qatar could replace some US LNG, which is being sold to the EU at “two to three times” the price of piped Russian gas, Mr Salameh said.

The price of US LNG exports averaged $6.09 per thousand cubic feet in September this year, after falling nearly 12 per cent since the beginning of the year amid muted demand in Europe in 2024, according to the US Energy Information Administration.

However, buying US LNG offers some advantages for the EU. US LNG is typically sold 'free on board', meaning buyers have greater control over transportation and delivery, allowing for more flexible trade routes.

Broader impact

Following the Qatari minister's objection to the new EU directive, it is possible that his US competitors share his worries, Mehdy Touil, lead LNG specialist at Calypso Commodities, told The National.

“Even worse, they [US exporters] source their feedgas from a multitude of a small suppliers, which are difficult to verify on an individual basis,” Mr Touil said.

A large portion of US LNG production is derived from shale gas, extracted through hydraulic fracturing (fracking) in formations such as the Marcellus Shale and the Permian Basin.

“As for the human rights aspect, since most modules for US LNG facilities are assembled overseas, it would be extremely difficult to conduct due diligence across the whole supply chain,” Mr Touil said.

Analysts expect the EU to work out a deal with suppliers to keep the LNG shipments flowing.

According to the FT report, Mr Al Kaabi suggested there could be room for compromise if the penalties targeted only income generated in Europe rather than total global revenue.

“There is precedent for easing of EU rules on Qatar with an investigation into destination restrictions being dropped in February 2022 at the outset of Russia's invasion of Ukraine,” said James Waddell, head of European gas and global LNG at Energy Aspects.

He was referring to how the European Commission in 2018 initiated an anti-trust investigation into QatarEnergy (formerly Qatar Petroleum) to assess whether destination clauses included in its LNG supply contracts with European buyers breached EU competition rules.

However, Mr Waddell said that the new EU directive could pose challenges for the bloc when concluding new contracts with Qatar.