Tariffs Or More Energy: Analyst Warns Of High Costs, Limited Capacity If Europe Bows To Trump's LNG Push

President-elect Donald Trump has reignited trans-Atlantic trade tensions, demanding the European Union buy more U.S. oil and liquefied natural gas (LNG) or face sweeping tariffs.

The U.S. is already Europe's largest energy supplier. Questions remain over whether Trump’s ultimatum will escalate into a broader trade war.

"I told the European Union that they must make up their tremendous deficit with the United States by the large-scale purchase of our oil and gas. Otherwise, it is TARIFFS all the way!!!" Trump wrote Friday on his social media platform, Truth Social.

U.S. natural gas prices — tracked by the United States Natural Gas Fund LP UNG — has risen by 25% since Trump’s election victory in November.

US LNG: A Major Player In Europe's Energy Crisis

The U.S. delivered 47 million tons (mt) of LNG over the past year (December 2023–November 2024), accounting for 51% of total U.S. LNG exports and 46% of Europe's LNG imports.

This surge in trade reflects a sharp pivot in Europe's energy strategy following the 2022 energy crisis sparked by Russia's invasion of Ukraine and subsequent sanctions on Moscow.

Goldman Sachs data shows that U.S. LNG deliveries to Europe rose 197% during the crisis, while shipments to non-European destinations fell by 41%.

According to Samantha Dart, commodity analyst at Goldman Sachs, this reallocation was made possible by the flexible destination clauses in U.S. LNG contracts, which allow buyers to redirect cargoes to the most lucrative markets.

"The US is not only Europe's largest LNG supplier but also the primary source of future LNG import growth for the region," Dart said, citing long-term contracts signed since the start of the Ukraine war.

These agreements amount to nearly 16 million tons per annum (mtpa), making the US the top global supplier in terms of contracted European LNG volumes.

Can US LNG Fully Replace Russian Gas?

Theoretically, U.S. LNG could replace Russia's 17 mt of annual LNG exports to Europe, according to Goldman Sachs.

However, Dart indicating that such a shift would likely come with higher costs for European buyers.

"The reallocation of US LNG cargoes to Europe could lead to higher freight costs and elevated European import prices to motivate the rerouting of shipments originally destined for other regions," Dart said.

She added that such a move would have "little to no impact" on total U.S. LNG export volumes, given that US liquefaction capacity is already operating at its limit.

Goldman Sachs also highlighted that expanding U.S. LNG export capacity would take time, with new liquefaction facilities unlikely to come online before 2027 or 2028.

This timeline significantly limits the potential for a near-term increase in U.S. LNG exports to meet Europe's energy needs.

Yet, Europe's climate agenda may limit its willingness to commit to additional long-term LNG deals. "Europe's decarbonization goals might limit European companies' appetite for long-term commitments to grow natural gas use," Dart said.

Tariffs As A Trump Negotiation Strategy

Trump's renewed focus on tariffs aligns with his broader economic agenda. During his first term, he used tariffs to push for concessions from trading partners, targeting allies like Canada, Mexico, and South Korea, as well as adversaries like China.

For example, during the 2018-2019 trade war with China, Beijing retaliated with LNG tariffs, causing US exports to collapse. It wasn't until 2020's Phase 1 trade deal that China resumed buying US LNG, signing long-term contracts that have since helped fund new US liquefaction projects.

Similar dynamics could play out with Europe if Trump's tariffs escalate. But unlike China, Europe may struggle to justify long-term LNG deals given its climate goals and reliance on diverse energy suppliers.

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