LNG supply risk keeps growing in Europe and Asia

Monday, 01 November 2021
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A colder-than-usual winter in Europe as well as in Asia would mean there is insufficient gas available to meet demand. “A cold European winter could boost heating demand up to 20 billion cubic meters (bcm), while a cold Asian winter could add up to 7.5 million tons (or 10.5 bcm) of LNG demand across China, Japan, South Korea and Taiwan. This would take 10.5 bcm in LNG imports away from the European market,” explained Wood Mackenzie’s vice president, gas and LNG research, Massimo Di-Odoardo.

Still, Wood Mackenzie assumes that Gazprom will fully honor its ship-or-pay agreements on all key gas interconnectors to Western Europe which would leave around 29 bcm of gas in storage by the end of March. According to Wood Mackenzie findings, this would be “below the average level of the past five years, but comfortably above record lows.”

To that end, Gazprom will need to use all its existing capacity – Nord Stream, Yamal-Europe, Turkstream and Ukraine – up to the ship-or-pay agreements. In this case, Europe still needs some 58 Bcm of gas in storage to meet peak winter demand. But with currently only 29 bcm of gas in storage, there is a risk storage levels could drop to zero. If this plays out, Europe would be wholly dependent on Russian flows above existing capacity.

Europe storage levels could fall to zero

This winter could be one like no other. A cold winter in both Europe and Asia would risk European storage levels dropping to zero, leaving Europe dependent on timely approval of Nord Stream 2 or Russian willingness to ship more gas through Ukraine if it is to avoid demand curtailments.

“A cold winter in Russia would limit Gazprom’s ability to support additional exports through both Nord Stream 2 and Ukraine – although that has never been likely,” Di-Odoardo said, suggesting: “The sky could be the limit for European gas prices this winter.” 

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