Rystad Energy foresees a crisis brewing for European countries dealing with energy insecurity in the wake of Russia’s invasion of Ukraine as demand will outstrip supply by the end of this year.
“Global LNG demand is expected to hit 436 million tonnes in 2022, outpacing the available supply of just 410 million tonnes,” points out Rystad forecasting that the supply imbalance and high prices will set the scene for the most bullish environment for LNG projects in more than a decade, although supply from these projects will only arrive and provide relief from after 2024.
Rystad underlines that the European Union’s REPowerEU plan, setting an ambitious target to reduce dependence on Russian gas by 66 per cent within this year, will clash with the EU’s goal of replenishing gas storage to 80 per cent of capacity by 1 November.
“The decision to sharply reduce reliance on Russian gas and LNG from current levels of between 30-40 per cent will transform the global LNG market, resulting in a steep increase in energy-security based European LNG demand that current and under-development projects will not be able to supply,” suggests the research.
The research underlines that replacing Russian supplies (155 bcm of gas last year) will be exceedingly difficult, creating a boom for LNG producers elsewhere of a scale and duration not seen in over a decade.
“There simply is not enough LNG around to meet demand,” says Kaushal Ramesh, senior analyst for Gas and LNG at Rystad Energy. “In the short term, this will make for a hard winter in Europe. For producers, it suggests the next LNG boom is here, but it will arrive too late to meet the sharp spike in demand. The stage is set for a sustained supply deficit, high prices, extreme volatility, bullish markets, and heightened LNG geopolitics.”
The expected reduction in Russian gas for Europe this year is 37 bcm, rising to more than 100 Bcm by 2030. As a result, Europe’s gas consumption likely peaked in 2019 and will now decline steadily through to 2030. Gas and LNG is therefore set to play a reduced role in Europe’s energy mix, providing further impetus for renewables and potentially a greater role for nuclear and coal according to Rystad.
The research recalls that Europe was in fact on course to increase Russian imports of gas and LNG to over 40 per cent of its supply by 2030, if the now stalled Nord Stream 2 pipeline had been approved. This will instead drop to around 20 per cent by 2030 as current contracts are not renewed.
If Russian flows were to stop tomorrow, the gas currently in storage (about 35 per cent full) would likely run out before the end of the year, leaving Europe exposed to a brutal winter. Under this scenario, in the absence of joint buying arrangements and countries competing for limited molecules, the TTF gas price could climb to more than 100 US dollars per million British thermal units (MMBtu), resulting in industrial curtailments and widespread fuel switching in the power sector. In an extreme scenario of a severely cold winter, not even the residential sector would be safe.
Recently, more than LNG 20 projects with a combined capacity of over 180 million tonnes per annum (tpa) have reported some development progress. To be certain of LNG supply in 2030, the market will need more than 150 million tpa of production from the 186 million tpa planned, which means more than 80 per cent of the project pipeline must be realised, highlights Rystad.