IHS Markit: LNG Can Replace Ukraine Gas Flows To Europe

If the natural gas flows from Russia via Ukraine were to stop in an escalation of the Russia-Ukraine crisis, LNG imports would be enough to replace the flows to Europe via Ukraine, IHS Markit said in a report on Monday.

Gas flows from Russia to Europe via Ukraine were already at historical lows in January, and if the remaining transit via Ukraine is shut off completely, it would have a relatively limited additional impact on European supply, the analytics company said.

However, in an extreme—and according to IHS Markit, a highly unlikely—scenario that all Russian pipeline gas supply to Europe is cut off, LNG imports alone would not be able to meet the shortfall, and additional supply levers would be required.

“So far, this is more of a price crisis than a physical supply crisis,” Shankari Srinivasan, vice president, global gas, IHS Markit, said in a statement.

“While gas supply is sufficient to meet most market needs through the end of the winter heating season, high prices are already leading to closures of some industry and furloughing of workers in Europe,” Srinivasan added.

“Under an extreme, if highly unlikely, scenario where all Russian pipe flows were cut off, the tightness of global LNG supply and limited spare European LNG regasification capacity means that other supply levers would be needed to close the gap,” said Michael Stoppard, chief strategist, global gas, IHS Markit.

In such a scenario, more coal and nuclear power generation capacity will have to come back online or plant closures need to be delayed, along with additional withdrawal from natural gas storage sites, according to Stoppard.

The United States and Europe are scrambling to secure LNG supply for Europe in case the Russia-Ukraine crisis escalates into a conflict. 

Major LNG exporter Australia said last month it was ready to ship LNG cargoes to Europe to “support its friends and allies,” while Qatar has signaled willingness to divert some cargoes if the European Union restricts the resale of gas cargoes outside the EU.

“There is still spare capacity that can be used to receive additional gas supplies, in particular through LNG terminals,” EU Energy Commissioner Kadri Simson said last week.

By Charles Kennedy for Oilprice.com

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