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Europe's Russian gas dependency to surge

Development of LNG trains central to bridging rapidly expanding import gap


European demand for gas is expected to remain “very resilient” while domestic supply dwindles, a research analyst at consultancy Wood Mackenzie told the Gastech conference in Houston, leaving a widening import gap that Russia is best placed to fill.

While European indigenous gas supply continues to decline, national governments enacting policies to phase out coal are supporting demand for replacement sources for energy generation.

Murray Douglas, from Wood Mackenzie’s European gas research team, highlights a trend that began with COP 21 in Paris in 2015 and then, in late 2018, “we had the European Commission really set out a strategic long-term vision” to become climate neutral by 2050.

“We believe that European gas demand will prove to be very resilient, particularly through the 2020s,” he says. “That essentially means that the European import gap begins to open up quite significantly.”

Since 2010 European import dependency has averaged 50pc, according to Wood Mackenzie data. “We reached 57pc last year and we believe that by 2030 it will reach 78pc,” says Douglas.

“European gas demand will prove to be very resilient, particularly through the 2020s” — Douglas, Wood Mackenzie

The consultancy estimates that, by 2030, Europe will need to import more than 400bn m3 of gas per year, up from almost 310bn m3 in 2018. And it foresees only 12pc of Europe’s imports will be piped from North Africa and through the southern corridor from Caspian states and, possibly, the Mid-East Guf. “This will leave a significant gap for Russian piped supply and LNG to fill.”

The largest Russian LNG supplier Novatek approved FID on its Arctic LNG 2 project in early September, which is scheduled to add 19.8mn t/yr across three trains between 2023 and 2026. Its Yamal LNG facility has been in operation since 2014.

“Russia’s journey from piped to LNG exports will increase global exposure while providing flexibility and opportunity to respond more quickly to price and market signals,” says Douglas. “Importantly, new LNG projects in the Arctic are economically competitive against other options.”

Russia is well established as Europe’s largest gas supplier, through pipelines. However, additional gas pipeline development growth appears unlikely beyond the Nord Stream 2 and Turk Stream projects, which become operational next year. Uncertainty clouds the future of Ukraine transit, according to Douglas.

But Russia is just one of several major gas producers looking to expand LNG operations and Wood Mackenzie expects a record number of global LNG FIDs this year. And this additional supply will be key to LNG providing a future option to fill the European supply gap.

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