Page 5 - FSUOGM Week 07 2022

FSUOGM COMMENTARY FSUOGM

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

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