Russell: EU's promise of $250 billion in US energy imports from the US is delusional

The framework agreement with the European Union has strong echoes from Donald Trump's failed deal with China during his first term as U.S. President.

Trump and EU Commission president Ursula von der Leyen made the announcement of a 15% tariff for U.S. goods imported from the EU on Sunday at the golf course where the U.S. President plays in Scotland.

The EU's apparent commitment to massively increase energy imports from America is more important than the 15% tariff.

The agreement requires that EU imports from the United States of energy, which are currently mainly crude oil (oil) and liquefied gas (LNG), amount to $250 billion per year for a period of three years.

It is an absurd level of imports, one that U.S. manufacturers would struggle to meet.

Even if it were possible for the EU to increase its energy imports to the United States up to $250 billion per year, this would be a massive disruption to energy flows in the rest of world.

The scale of the problem is evident in the numbers.

According to energy analysts Kpler, the 28 EU members imported 3,38 billion barrels seaborne crude oil by 2024.

If the volume in 2025 remains the same, and the average price per barrel is around $70 then the EU will be paying about $236.6 for its crude.

In 2024, the EU imported 573 million barrels of oil from the United States. If this trend continued in 2019, it would amount to around $40 billion.

The EU imported LNG in the amount of 82,68 million metric tonnes, costing around $51.26 Billion, assuming a price average of $12 per million British Thermal Units (mmBtu).

In 2024, imports of super-chilled fuel were estimated at 35.13 millions tons and worth $21.78 billion.

The EU also purchases coal from the United States. Most of it is metallurgical or higher-value coal that is used in steel production.

The total EU imports of metallurgical coke in 2024, assuming a price per ton of $200, were $6.72 billion. Imports from the United States, however, were valued at $2.67billion.

Add together the EU's imports of U.S. LNG, metallurgical coke and crude oil to get a total value of $64.55 billion by 2024.

The EU must spend $250 billion on U.S. Energy per year as part of the Framework Agreement.

If the EU increased its imports of U.S. oil, LNG, and metallurgical coke to $250 billion, that would represent 85% of their total expenditure on these energy commodities.

US EXPORTS

According to Kpler's calculations, the United States will export 1.45 billion barrels in 2024. This would amount to $101.5 billion if crude oil was priced at $70 per barrel.

The U.S. LNG shipments in 2024 were estimated at 87.05 millions tons, worth $54 billion if the average price per mmBtu was $12.

The U.S. export 51,53 million tons (worth $10.3 billion) of metallurgical coke in 2024. This is equivalent to $200 per ton at an average price.

Even if all three commodities were purchased by the EU, the total value would be $165.8 Billion. This means that the EU will still fall short of $250 Billion.

The delusion is probably bigger than what Trump and China agreed to in their so-called Phase 1 Trade Deal in December 2019. Under this agreement, China was supposed buy $200 billion more of U.S. Energy by the end 2021.

China's imports of U.S. Energy didn't reach the level they were at before Trump started his first trade dispute in 2017.

When examining the framework agreement between Trump & Von der Leyen, there are some caveats.

First, not all details are known. The $250 billion in energy also includes nuclear fuel. However, this is only a small amount even if it is included.

Second, the deal is likely to include refined fuels. U.S. exports of products like diesel to the EU will be almost 110 million barrels by 2024. This would amount $10.9 billion at $100 per barrel.

It's clear that the commitment of $250 billion to purchase U.S. Energy is unrealistic and impossible.

Smart people must have known this. Why then would they agree to such a ridiculous amount?

What happens if the inevitable fails?

Maybe the EU hopes for the same result as China with its first trade war against Trump in 2019.

Talk nice and run down the clock. Hopefully, the next U.S. President will be easier to deal.

You like this column? Open Interest (ROI) is your new essential source of global financial commentary. ROI provides data-driven, thought-provoking analysis on everything from soybeans to swap rates. The markets are changing faster than ever. ROI can help you keep up. Follow ROI on LinkedIn, X.

These are the views of the columnist, who is also an author. Editing by Jacqueline Wong

(source: Reuters)