Replacing Russia gas flows: Is LNG Europe`s only meaningful near time option?  

Xi Nan, Vice President

Gas & LNG Markets Research

Welcome back to another edition of our Gas & LNG market newsletter. 

Geopolitical tensions in Europe are still dominating the Gas & LNG markets. Russian gas giant Gazprom has halted exports to Poland and Bulgaria over the two countries' refusal to pay for supplies in rubles since 27^th April. European gas prices have reacted with renewed volatility, surging to nearly $40 per million British thermal units (MMBtu) the same day, up around 18% from the close price of the day before.

Given the total gas consumption in Poland and Bulgaria combined is merely 23 billion cubic meters (Bcm) per year, the knock-on effects are considered insignificant. However, concerns have risen about other large countries being cut off from Russian supplies. Not all countries have readily available alternatives to Russian gas, and as infrastructure upgrades and additions require significant time and investment, some countries could struggle in the short term to replace any sudden drop in supply. More severe consequences are likely if large countries or individual buyers are cut off, such as Germany and Italy. A complete halt in Russian gas flows to Europe may again send the TTF price to more than $100/MMBtu, a price level we observed on 7^th March.

Commentary source: Short-term outlook: Poland, Bulgaria brace for halted Russian gas supplies

Russian pipeline supplies last year accounted for around 28% of Europe’s total gas supply. Include Russian LNG, and the number exceeds 31% or 155 Bcm out of a total of 495 Bcm. Replacing any meaningful proportion of that is going to be exceedingly difficult, with far-reaching consequences for the European economy, European energy security, and for the role of gas in Europe’s energy transition. LNG is Europe’s only meaningful near-term option.

Commentary source: The new center of the LNG universe

European LNG demand, which exceeded 70 million tonnes (Mt) in 2021, will now vary between 97 million and 107 million tonnes per annum (tpa) each year through 2030, accounting for an incremental demand of 17-40 million tpa – which as of two months ago did not exist. This will support an accelerated energy transition in line with the European Union’s REPowerEU plan, which envisages replacing Russian gas with non-Russian pipeline supply, LNG, demand side responses, efficiency measures, and an accelerated renewables rollout.  Accordingly - this energy-security focused LNG demand may be less price elastic than before, implying an appetite to pay higher prices.

Commentary source: Europe’s decision to turn away from Russian gas to have wide ranging impact

You can stay fully informed of market dynamics with our Gas & LNG markets services. We offer a short-term outlook with our new LNG Trade Analytics, plus the medium to long-term outlook through our Gas Market Analytics, including:

• What are the short-term signals to reflect market nervousness?
• What are the daily LNG traded volumes and costs from and to each LNG facility?
• LNG cargo diversions
• FID outlook
• Energy transition

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