Welcome to our February Gas & LNG Markets newsletter.
Yesterday, President Putin declared Ukraine’s two eastern regions, Donetsk and Luhansk, as independent states and then ordered Russian forces into the regions. Today, Germany’s chancellor, Olaf Scholz, has already stopped the approval process of the Nord Stream 2 by ordering the Ministry of Finance to withdraw a report needed for the certification process.
A Russian-Ukraine conflict will have a significant impact on the Ukrainian population, but it will also have major implications further afield, especially for the supply of Russian natural gas into Europe.
Russia supplies Europe with over 30% of its gas needs, some 25% of which is transited by pipeline through Ukraine. Depending on how the Russia-Ukraine crisis escalates, there is a real risk these flows could reduce or cease altogether. This would create turmoil in Europe’s tight winter gas market, which is already suffering from a supply shortage due to low stocks and production outages.
The start-up of Gazprom’s Nord Stream 2 pipeline will also be significantly delayed or perhaps even scrapped, based on the latest escalation in the dispute. The pipeline, which is completed but awaiting approval from German regulatory authorities, will have the capacity to export up to 55 billion cubic meters (Bcm) of Russian gas to Europe. Nord Stream 2 runs from Russia to Germany via the Baltic Sea, allowing Russia to bypass Ukraine in supplying additional gas to Europe. Russia says gas exports to Europe will increase once Nord Stream 2 is up and running, making it an important element in re-balancing the European gas market. Delays in the start-up of the pipeline will therefore cause a prolonged period of tightness in the European market.
Overall, the Russia-Ukraine dispute raises questions about Europe’s gas market balance, its exposure to Russian gas volumes and European energy supply security in general. These include:
- How could rising tensions between Russia and Ukraine impact Europe’s gas supply?
- How reliant is Europe on Russian gas?
- What will happen if gas exports through Ukraine halt?
- Can Russian gas be replaced by other sources?
- Can Europe import more LNG? If so, how much and where from?
- How much Russian gas will be needed to balance the European market in 2022?
These are some of the questions Rystad Energy answers for our clients through in-depth research using our data analysis and forecasting capabilities, enabling us to provide a fact-based view on the European gas and LNG market.
We hope you enjoy our analysis.
Thank you for reading.
Clients can read our full commentary, How could rising tensions between Russia and Ukraine impact Europe’s gas supply? here.