The Agreement raises the issue of diversification of supply. To achieve the commitments in the US-EU Framework Agreement, the United States will need to supply over 80% of the EU’s LNG, which will be difficult to justify as a bloc or at the Member State level, given the need to diversify energy/fuel types, decarbonisation requirements, and the need to obtain the best pricing and terms (given the massive expansion of liquefaction capacity in Qatar and other global LNG producers).
There are also challenges with issues relating to the LNG re-gas terminal capacity in the EU at these volumes (even though further capacity continues to be added across the bloc) and the growing regulatory divergence between the EU and the US on issues such as LNG methane regulations.
In the United States, more gas is being utilised for AI data centres and other electrification demands (electronic vehicles, air conditioning, etc.) and domestic gas prices are projected to trend upwards over the coming years. In addition, the Trump Administration is cutting subsidies and tax credits for wind and solar projects and there is expected to be more overall demand for gas. US gas producers and traders will allot gas or LNG sales to the buyers offering the best prices and on the best terms.
There are no enforcement mechanisms in the US-EU Framework Agreement for failure to meet the purchase commitment, although a possible mechanism on the US side could be to simply raise (or threaten to raise) tariffs to incentivise the EU to fulfil its commitments.
The EU has discussed implementing a common LNG aggregator procurement mechanism through the bloc aimed at coordinating increasing purchases from US LNG producers, but it remains to be seen how effective this will be, if implemented. The European Commission has also made various statements about more direct involvement in LNG projects to secure LNG offtake and to stabilise LNG prices.
What will be certain, however, is that EU buyers will be very active participants in short-term or spot purchases of US cargoes over the coming years. There may also be several long-term commitments for US LNG from EU-based offtakers. Importantly, the US-EU energy dynamic is playing out against the background of other geopolitical developments, such as the closer economic and geopolitical ties between the world’s second largest gas producer, the Russian Federation, and the world’s largest hydrocarbon consumer, China.
What are other jurisdictions doing?
The ultimate details of a trade deal to emerge between the US and China are still to be announced; however, China has prohibited the import of US LNG cargoes since March 2025 due to trade and tariff tensions between the world’s two largest economies.
Against this background, the announcement on 2 September 2025 of a “legally binding memorandum” between Gazprom and China National Petroleum Corporation for the Power of Siberia 2 natural gas pipeline (“PoS2”) is of great significance. PoS2 will transport natural gas from the Yamal region in Russia (the area of the LNG plant supplying a large amount of the EU’s current recent LNG demand) to northern China, transiting Mongolia, and will introduce a new dynamic into the global energy market. A further 6 bcm per annum (from 38 bcm to 44 bcm) of supply through the existing Power of Siberia gas pipeline was also announced.
PoS2 has a total potential capacity of 50 bcm of gas for the Chinese markets for a proposed 30-year term and is designed to fill the gap entirely in Russian gas sales left by the ramping down and termination of EU gas purchases.
There are many significant issues outstanding, such as timeline, pricing, and financial terms, before the anticipated commencement of construction on PoS2 in 2030, but this announcement is a game-changer for both China and the Russian Federation and is another significant factor in the overall energy geo-political picture. The contribution that PoS2 will make to China’s energy mix in the medium to long term is likely to have a significant impact on China’s appetite for LNG supply, although China has always sought a large degree of portfolio diversification in its energy supply mix.
If you have questions about the Framework, or any other LNG matter, please contact James Douglass.