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Alternatives to Russian Gas in Europe Materialize and Firm Up

By Rystad Energy

Russian gas exports to Europe have declined in the past month, with Norway increasing flows 17% in the past week and LNG imports at a 5-year hire.

Here is Rystad Energy’s regular gas and LNG note from senior analyst Nikoline Bromander:

European LNG imports are soaring, hitting a five-year monthly high in April as supply tightness in the continent continues, averaging 4.45 GWh/d, continuing the strong trend over the past months.

Russian gas exports to Europe have declined in the past month, with Norway increasing flows 17% in the past week and LNG imports at a 5-year hire.

Alternatives to Russian gas in the European market have started to materialize and firm up since Russia’s decision to halt flows to Bulgaria and Poland.

Poland is now cut off from Russian gas as of May 3, 2022, but a new pipeline to Lithuania, opened on May 1, 2022, will provide some supply relief.

Bulgaria too has been cut off by Russia, but announcement of a new floating LNG facility opening in 2023 in nearby Greece will keep them buoyant.

France, Spain, and the UK have accounted for most LNG imports in the past month.

The limited gas pipeline capacity in Europe has resulted in weaker price couplings between different regional benchmark prices.

The UK’s NBP spot benchmark is trading at a large discount to the TTF, priced at €46 at closing yesterday compared to €96 for the TTF spot.

Russian pipeline flows to Europe are stable May 4, 2022, ~250 MCMD, after Flows via the Yamal pipeline from Germany to Poland went to zero May 3, 2022.

Norway has ramped up its gas flows to Europe, currently at ~329 MCMD, up 17% week over week.

Nervousness in the market is driving gas prices (TTF) to EUR 106/MWh (~$35/MMBTU) on May 4, 2022, up nearly 7% day on day, following the new list of sanctions including a phase out from the EU announced earlier.

In addition to concern in the market over EU sanctions, there is also a upside risk related to threats from Russia terminating natural gas exports, as has already happened with Bulgaria and Poland.

If Russia shuts off supplies to more countries unwilling to pay in rubles then prices could skyrocket in the near term.

Most European countries will struggle to replace a sudden drop in supply.

Germany and Italy in particular are likely to suffer severe economic consequences given their heavy reliance on Russian gas imports.

Poland has currently ample natural gas storage, currently at 79%.

Poland has prepared well for this eventuality and has the capacity to ramp up liquefied natural gas (LNG) imports and will also benefit from the Poland-Lithuania Gas Connector (GIPL) that started operating on 1 May with a capacity of 2.4 Bcm/year.

Bulgaria, which was 100% reliant on Russian gas imports, will need to quickly take opportunities to diversify its gas imports.

The announcement, on May 3, 2022, that a new floating liquefied natural gas (FSRU) facility near the Greek port of Alexandroupolis, will start operations at the end of 2023, will be welcome news in Sofia.

Asian gas prices have been falling since the week of April 25, 2022,  due to lower demand and lockdowns.

Pricing in the region continues to trail the European market, while still competing with Europe for LNG deliveries.

 

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