Page 5 - GLNG Week 06 2022

GLNG COMMENTARY GLNG

“It would prove impossible to find alternative prices compared with a year ago for some years
volumes to meet 28% of annual demand,” Wood until new supply, mainly from Qatar and the
Mackenzie says. “Were all gas flows to stop US, becomes available in the middle of the
today, existing gas storage would run out in six decade.”
weeks. Demand destruction would be massive Wood Mackenzie stresses that Russia has
and if disruption was prolonged, gas inventory a lot to lose, despite its dominant position in
couldn’t be rebuilt through the next summer. the European gas market. Recent events could
We’d be facing a catastrophic situation of close undermine its reputation as a reliable supplier,
to zero gas in storage for next winter.” and Europe may seek out extra supply elsewhere
Meanwhile, an unintended disruption in to reduce risk.
Ukrainian transit only as a result of conflict “Second, there’s the impact of soaring prices
would be more manageable, Wood Mackenzie and supply uncertainty on gas demand, in
says, as long as Russia was prepared to reroute Europe and elsewhere,” the consultancy con-
supplies via Belarus and Poland. tinues. “Europe might use the crisis to push
“But even with the Belarusian option, Europe even harder on its plans for net zero. Growth in
would have to pull every lever in the energy sys- the global market longer term is all about Asia,
tem to keep the lights on – reducing gas burn with gas displacing coal to meet rising energy
and cranking up mothballed nuclear and coal demand and reduce emissions. High prices and
plants (with all the backlash around higher volatility do the cause no good at all.”
emissions that would bring),” the consultancy Lastly, Rystad Energy notes that the markets The markets in
predicts. in Europe that could ramp up LNG imports
Europe would also have to resort to extra are not in some cases the same markets that Europe that could
indigenous supply, in places like Norway and rely heavily on Russian gas and would need ramp up LNG
the Netherlands, where the giant Groningen that LNG in the event of a disruption. West-
gas field is due to be closed down later this year ern Europe almost has enough LNG import imports are not
because of earthquake risks. The continent capacity to replace all Russian gas, but would
would also have to try to boost pipeline imports need an extra 8bn cubic metres of indigenous in some cases
from Azerbaijan and Algeria, and persuade production.
Asian buyers to switch back to coal to free up “Regasification could be a stumbling block for the same markets
LNG. fresh imports,” Rystad says. “Western Europe’s that rely heavily
regasification capacity was operating at 100%
Price outlook last month, and spare capacity to accommodate on Russian gas.
On the price outlook, Wood Mackenzie believes a future increase in import volumes is mini-
that “defusing of military tension would quickly mal. Poland and Lithuania have only a smaller
lead to lower prices as the winter ends, though amount of additional LNG import capacity that
it’s hard to imagine the market can go back to could be utilised. On the other hand, Southern
pre-crisis levels with no risk premium after Europe has significant spare import capacity,
everything that’s happened.” but is less reliant on Russia, as the region already
“Any other scenario and the initial reaction sources the lion’s share of its gas from the LNG
would see prices go through the roof,” it said. market, as well as through pipelines from North
“The likelihood is that Europe faces elevated Africa and Azerbaijan.”™

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