US Energy Policies Reshape Global Gas Markets in 2025

The global energy landscape is influenced by recent US policies. Following President Donald Trump’s executive orders, the extraction of oil and gas in the United States has been streamlined. This shift coincides with the US withdrawal from the Paris Climate Agreement, which aimed to limit fossil fuel usage. The geopolitical tensions following the Russia-Ukraine war have further complicated the energy dynamics, particularly for Europe.

Changes in European Gas Imports

• The European Union has drastically reduced its dependence on Russian gas.
• In 2021, Russia supplied over 40% of the EU’s gas. By 2023, this figure plummeted to around 8%.
• The EU’s imports from Russia fell from 132 billion cubic metres in 2021 to just 26 billion cubic metres in 2023.
• This shift was facilitated by increased purchases of liquefied natural gas (LNG) from Norway and the US.

US as a Leading Gas Exporter

The United States has become the world’s top LNG exporter, increasing its exports since the shale gas boom began in the early 2000s. In 2023, the US exported 114 billion cubic metres of LNG, with 56.2 billion cubic metres supplied to the EU. This change from being a net importer to a leading exporter reshapes global energy markets.

Economic Impact on Europe

The EU’s transition away from Russian gas has resulted in higher energy prices. This has led to a loss of competitiveness and economic slowdown across Europe. Germany, the EU’s largest economy, faced a decline of 0.2% in 2023. Projections indicate zero growth for Germany in 2025, contrasting with a global growth forecast of 1.8% for advanced economies.

Geopolitical Ramifications for Russia

Russia has lost its largest export market due to the EU’s pivot away from its gas supplies. Energy exports to the EU, which constituted over 60% of its total exports in 2021, fell drastically. This has compounded economic challenges for Russia, limiting its revenue from energy sales.

Impact on Global LNG Markets

The demand for LNG has surged, particularly from Asia. Countries like China, Japan, and South Korea are adapting to higher energy prices, while nations in the Global South face challenges. India, a growing LNG importer, may struggle with increased costs, delaying its transition from coal. The price spike also affects fertiliser production, raising food prices globally.

Challenges for Iran and Russia

Despite having substantial natural gas reserves, both Russia and Iran are largely excluded from the global LNG market. US sanctions hinder their ability to engage in international trade. The reluctance of companies to invest in LNG infrastructure in these countries limits their export potential.

Future of Global Energy Procurement

Countries worldwide are adjusting their energy strategies in response to the price shocks and geopolitical tensions. Many have built reserves and implemented price controls to mitigate the impact of elevated gas prices. The current situation is more stable compared to the extreme fluctuations observed during the 2022 crisis.

Questions for UPSC:

1. Critically discuss the implications of the US energy policies on global gas markets.
2. Examine the impact of the Russia-Ukraine war on European energy security.
3. Analyse how the shift in global LNG demand affects developing countries.
4. Point out the challenges faced by Iran and Russia in the global energy market.

Answer Hints:

1. Critically discuss the implications of the US energy policies on global gas markets.

1. US executive orders have streamlined oil and gas extraction, increasing domestic production.
2. The US withdrawal from the Paris Climate Agreement has prioritized fossil fuel usage over renewable energy.
3. The US has become the world’s top LNG exporter, reshaping global energy dynamics.
4. Increased US LNG exports have reduced European reliance on Russian gas, altering trade patterns.
5. Higher LNG prices benefit US producers but may strain economies reliant on imported energy.

2. Examine the impact of the Russia-Ukraine war on European energy security.

1. The EU has reduced its dependence on Russian gas, dropping from over 40% to about 8% of imports.
2. Energy imports from Russia fell from 132 bcm in 2021 to 26 bcm in 2023 due to the conflict.
3. The EU’s energy diversification strategy involved increased LNG purchases from the US and Norway.
4. Higher energy costs have led to economic slowdowns, particularly in Germany, the EU’s largest economy.
5. The war has prompted the EU to rethink energy security and invest in alternative energy sources.

3. Analyse how the shift in global LNG demand affects developing countries.

1. Developing countries face higher energy costs due to increased global LNG demand, impacting economic stability.
2. India’s transition from coal may be delayed as rising LNG prices strain its energy budget.
3. Countries like Pakistan and Bangladesh, heavily reliant on gas imports, are particularly vulnerable to price shocks.
4. Higher gas prices have raised fertilizer costs, contributing to increased food prices in developing regions.
5. Countries are adjusting energy procurement strategies to mitigate impacts, but challenges remain .

4. Point out the challenges faced by Iran and Russia in the global energy market.

1. Both countries hold vast natural gas reserves but are largely excluded from the global LNG market.
2. US sanctions severely limit their ability to engage in international trade and attract investment.
3. Companies are reluctant to invest in LNG infrastructure in Iran and Russia due to regulatory risks.
4. Loss of access to key markets has drastically reduced their energy export revenues and economic stability.
5. Both countries face long-term challenges in diversifying their economies away from energy dependence.