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Russia-Ukraine tensions could jeopardize 30% of European gas demand

An escalation of tensions between Russia and Ukraine could put up to 155 billion m3 per year of gas imports to Europe at risk, if the conflict causes Russia to halt deliveries, Rystad Energy estimates. The figure corresponds to 30% of Western Europe’s annual gas demand

Russia-Ukraine tensions could jeopardize 30% of European gas demand

Source: Gazprom

Oslo, February 11 - Neftegaz.RU. Although a total shutdown of Russian piped gas is unlikely, European gas markets are entering the final stretch of winter in a precarious position.
Gas stocks are at 5-year lows, international LNG prices are highly volatile, and the Nord Stream 2 pipeline is not expected to be operational until the 2nd half of this year.

If Russian exports were shut off entirely, Europe would struggle to meet its gas needs.
Eastern Europe would be most severely hit as the region is the most reliant on Russian imports, whereas Western Europe could, in theory, fill the void with increased LNG imports, primarily from the US.
Western European countries have nearly enough LNG import capacity to replace all Russian gas but would need an additional 8 Bcm of domestic production to make up the difference to 2021 levels.

However, regasification, the process of converting LNG back into gas before sending it by pipeline to importing countries, could be a stumbling block for fresh imports.
Western Europe’s regasification capacity was operating at 100% last month, and spare capacity to accommodate a future increase in import volumes is minimal.

Of the 155 Bcm of piped gas Europe imported from Russia in 2021, 40 Bcm was piped through Ukraine, a supply that would likely be disrupted in the event of military escalation between the 2 countries.
If only the 40 Bcm were taken off the table, Europe could make up the difference with relative ease, but would have to pay higher spot prices for the replacement volumes.

Sindre Knutsson, VP for gas & LNG market analysis at Rystad Energy, said:
  • Despite Europe’s implicit policy to reduce its dependence on Russian gas – as demonstrated by the significant build-up in LNG import facilities on Western Europe’s coast in recent years – Russia plays a pivotal role in helping meet the region’s gas needs
  • As a result, any military conflict could have serious ramifications for European gas supply
European gas storage levels remain historically low at 45 Bcm currently.
This is 30% lower than the 5-year average and amounts to only 2 months of gas to meet average winter demand.
As a result, the region is particularly vulnerable to short-term movements in supply and demand, as evidenced by record spikes in traded gas prices on the TTF in recent months.

Russia is one of the most critical gas sources for the European market through its vast pipeline network.
Regionally, Western Europe imported 75 Bcm from Russia last year, accounting for 25% of total demand.
Eastern Europe imported 55 Bcm of Russian gas, equivalent to 57% of total demand, while Southern Europe sourced 25 Bcm from Russia, equal to 21% of its total demand.

LNG imports into Western Europe totaled 294 million m3 per day in January 2022 – a new all-time high utilizing 100% of the region’s regasification capacity – with most additional volumes coming from the US.
Of the total 8.6 Bcm of LNG that Western Europe imported in January, 56% or 4.8 Bcm came from the US, 1.7 Bcm came from Russia and 0.7 Bcm from Qatar.

More LNG supply is available, but only if European countries are willing to pay elevated prices.
Australia and Asia have most of the market’s available spot volumes, but those cargoes are unlikely to arrive in Europe due to long voyage distances.

Instead, the US, Africa, parts of Europe and Russia’s Yamal LNG could offer additional spot LNG.
Europe could also buy volumes from aggregators and traders looking to resell into the market.

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