With the war in Ukraine far from resolved, severe or even complete disruptions of Russian gas exports to Europe due to sanctions is a major energy concern. Increased reliance on Russian gas over the past decade has left Europe vulnerable.
Russian pipeline gas flows to Europe dropped sharply in 2021, especially in the year’s second half. Gazprom’s deliveries of Europe-bound gas in January 2022 were the lowest since 2017. While Gazprom appears to be meeting its long-term contractual obligations, the company has refused to sell additional gas on the spot market. Despite a significant increase in LNG imports, European natural gas storage ended this February at 320.7 terawatt-hours (Twh), the lowest over the past 3 years, according to Gas Infrastructure Europe (GIE).
With a complete cessation of Russian gas imports, European countries would need to replace about 200 billion cu m (bcm) of gas imports. Abrupt disruption of a cornerstone energy resource is outrageous and potentially life-threatening, especially during cold weather seasons. Among European countries, Germany, Russia’s biggest gas customer, is particularly exposed due to a lack of LNG import terminals and the closure of most of its coal and nuclear power generation capacity over the past decade.
The fact that about 40% of its natural gas imports come from Russia and other supply constraints greatly limit Europe’s options.
Increasing gas production from existing domestic assets with spare capacity (mainly Groningen field, the Netherlands) is a viable but difficult option. Groningen holds one of the largest natural gas reserves in Europe, but production is dwindling due to the earthquakes it triggered. Production of 7.6 bcm is expected in 2022, but Prime Minister Mark Rutte repeated that his government plans to end the field’s production completely this year, despite high prices and Russia’s attack on Ukraine.
In the medium-to-long term, increasing gas production within the European Union (EU) remains a political challenge. Most of the known reserves (technically recoverable shale gas resources are roughly 17 trillion cu m, US Energy Information Administration estimates) would need to be extracted by hydraulic fracturing, which is prohibited by law in many countries.
Norway and Algeria are the next largest gas suppliers to EU countries, accounting for 16% and 8% of total imports respectively. They may be able to provide additional quantities, but far from what is needed to make up for Russian supplies.
The Southern Gas Corridor pipeline system is connecting Azerbaijan’s gas fields to Europe without passing through Russian or Iranian territory. However, the system’s 16 bcm/year (bcmy) capacity is near its limit. Azerbaijan could increase volumes, according to a statement by Azerbaijan’s ambassador to the UK in late January, but is unlikely to ramp up production in a way that addresses European demand.
LNG regasification capacity in Europe is currently around 240 bcmy and is expected to reach 370 bcmy by 2026. Given high market prices, LNG cargo deliveries to Europe are likely to increase significantly. However, replacing Russian gas volumes with LNG is complicated, primarily due to the limited availability of additional supplies on the market. Global liquefaction capacity is almost exhausted, and LNG vessels are in high demand. Effects of additional LNG infrastructure investments will not be felt anytime soon. Furthermore, European buyers face stiff competition as most LNG is sold through long-term contracts, limiting the availability of spot supplies.
Meanwhile, European LNG regasification capacity and pipeline infrastructure are unevenly distributed and cannot meet individual countries’ needs, especially those in Eastern Europe. Despite efforts to increase reverse-flow capacity, pipeline systems, especially in Central and Eastern Europe, remain focused on transporting gas from east to west.
A full replacement of Russian gas is largely impossible. The continent will have to rely on demand-side measures to help address the issue. Some non-critical industries and businesses may need to close to reduce gas consumption. Fuel switching, primarily to nuclear, is also an option, but not without its own problems.