Page 4 - GLNG Week 06 2022

GLNG COMMENTARY GLNG

Analysts weigh up Europe’s

vulnerability to a Russian

supply disruption

Various oil and gas analysts have offered their takes in recent weeks on

how Europe might handle a potential disruption of Russian gas transit

POLICY VARIOUS oil and gas analysts have offered their global markets, as shipments would have to be
takes in recent weeks on how Europe might han- diverted from Asia.
WHAT: dle a potential disruption of Russian gas transit “So far, this is more of a price crisis than a
Analysts have offered in the event of military conflict in Ukraine, and physical supply crisis,” IHS’ vice-president
their takes on how Europe what the implications might be for the global for global gas, Shankari Srinivasan, explains.
might handle a potential market. The consensus is that such a disruption, “While gas supply is sufficient to meet most
disruption of Russian gas if confined only to Russian gas flow, would be market needs through the end of the winter
transit. manageable, as Europe would be able to resort heating season, high prices are already leading
to LNG imports. In the very unlikely event of to closures of some industry and furloughing of
WHY: a full stoppage in Russian pipeline exports, workers in Europe.”
Military conflict in though, Europe would have to take very drastic However, IHS warns that a complete cut in
Ukraine now appears steps to avoid its energy system failing. And a Russian gas deliveries to Europe would have far
more likely. disruption of any kind would drive up already more reaching consequences. Europe could not
record gas prices, both in Europe and across the rely on LNG alone to make up the shortfall.
WHAT NEXT: world, severely weakening the post-coronavirus “Under an extreme, if highly unlikely, sce-
The consensus is that (COVID-19) global economic recovery. nario, where all Russian pipe flows were cut off,
such a disruption would the tightness of global LNG supply and limited
be manageable as Europe Reliance spare European LNG regasification capacity
would be able to resort to Europe relies on Russia for around a third of its means that other supply levers would be needed
LNG imports. gas supply, and its market share has not changed to close the gap,” Stoppard says. “Extra coal and
significantly over the past decade, despite a con- nuclear power generation capacity – either in
certed EU effort to diversify its imports. In a new the form of mothballed capacity being brought LNG imports to
report, IHS Markit argues that a shutdown in back online, resorting to strategic reserves or
Russian gas transit via Ukraine would have rela- delayed plant closures – along with additional Europe soared
tively limited impact on European supply, given drawdowns of gas from storage would all be in January to
that flow already fell to an historic low of 50mn required.”
cubic metres per day in January. This said, even in this extreme scenario, Euro- account for 34%
“Europe is already experiencing a ‘quasi-cur- pean gas storage would be able to accommodate
tailment of Russia gas flow,” IHS’ chief strategist additional drawdowns needed to get the conti- of total supply.
for global gas, Michael Stoppard, says. “The nent through the rest of the winter season. This
result is a European gas import picture that is is despite the fact that European storage is cur-
starkly different from a year ago; one where rently at a historically low level for the time of
LNG imports have ramped up to fill the gap.” year – just 35%.
LNG imports to Europe soared in January to “Low storage inventories have been a key ele-
account for 34% of total supply, whereas Russian ment in keeping gas prices at elevated levels,”
deliveries slumped to 17%. US LNG supplies in Stoppard says. “Running down storage further
particular soared, accounting for the largest this winter would leave a huge mountain to cli-
share of LNG by far. Average LNG imports last mate to restock before the start of next winter.”
month came to 490 mcm per day, and that trend Wood Mackenzie agrees that the risk of Rus-
has continued into February. sia intentionally cutting off supply is remote, but
Yet, while a disruption in Ukrainian transit notes that such an event could lead to “energy
would not pose a threat to physical supply, IHS chaos in Europe and ripple out into global gas
argues that it will place further price pressure on and power markets.

P4 www. NEWSBASE .com Week 06 11•February•2022