LNG cannot offset halt of Russian gas flows to Europe

Europe does not have enough LNG import capacity to entirely replace Russian pipeline gas supplies, should these halt or be hit by international sanctions in the event of a conflict between Russia and Ukraine.

A complete halt of Russian flows to Europe remains an extremely unlikely scenario. But the US government is assuming that transit through Ukraine would be cut in the event of an invasion and has also been preparing for the event of Russian supplies to Europe stopping altogether, even though it considers it less likely. In recent months, members of the European parliament have also called for the EU to phase out Russian gas imports.

With limited flexibility left with which to increase production or pipeline imports, ensuring sufficient gas supply to Europe in the event of a complete halt in Russian deliveries would fall almost entirely to the region's LNG terminals, which have already been bearing the brunt of offsetting dwindling Russian flows in recent months. Russian flows to Europe reached a low of about 10.3bn m³ (8mn t of LNG equivalent) in December, compared with 14bn m³ (10.9mn t of LNG) in December 2020. By contrast, LNG deliveries to Europe - excluding Turkey - rose to 6.90mn t last month, from 5.25mn t a year earlier, data from oil analytics firm Vortexa show.

As Russian pipeline flows have slowed further this month, Europe ramped up its LNG receipts, which have already totalled 8.6mn t since the start of January, on track to reach a new monthly record. Gazprom sales to Europe, excluding the Baltic states and Turkey, may have been about 3.25bn m³ (2.5mn t of LNG) in the first half of this month, based on the company's statements. Europe would have been short of about 1mn t of LNG this month if Russian flows had completely stopped, even with import terminals running at full capacity.

But terminal capacity caps how much Europe can rely on LNG, particularly during periods of peak demand, even before supply availability is considered.

Russian flows to Europe - excluding Baltic states, Moldova and Turkey - averaged 162.7bn m³/yr across 2017-20, before falling sharply to about 135bn m³ in 2021. Monthly imports over 2016-20 ranged between 9.5bn m³ in November 2021 and 16bn m³ in May 2019, the quickest in any given month since at least March 2016. These would be equivalent to 7.4mn-12.3mn t/month of LNG. But combined European import capacity - excluding Lithuania and Turkey - stands at about 151.5mn t/yr, or 12.6mn t/month - which would be barely able to accommodate LNG volumes equivalent to Russian pipeline flows, even if capacity were entirely available (see table).

This is not the case. Europe already receives LNG under long-term deals that takes up capacity at import terminals. Even when market prices in 2016-17 favoured sending gas to Asia-Pacific over Europe, European receipts ranged from 2mn-3.7mn t/month. About 2.2mn t/month of this is delivered under long-term contracts with no destination flexibility, Argus estimates, reducing the remaining available capacity at LNG terminals to 10.1mn-10.6mn t/month.

Furthermore, almost a third of Europe's regasification capacity - 44.1mn t/yr - is in the Iberian Peninsula, which has limited interconnection with the rest of Europe. Flows from France to Spain through the Pirineos pipeline could be net off if Spain receives more LNG, increasing supply availability in northwest Europe, but scope for physical reverse flows are capped by the pipeline capacity of about 19mn m³/d. Another 34.4mn t/yr is in the UK, which does not receive physical Russian flows, although it is connected to markets in which there is instead substantial scope for competition between supply sources. Russia's largest customer in Europe, Germany - which received 52.5bn m³ from Russia in 2020, according to EU statistics unit Eurostat - has no direct access to LNG.

Constraints in supply availability

Replacing Russian gas flows to Europe with LNG may also be hampered by supply availability, with historical flows broadly equating to total LNG production in the Atlantic basin at present.

Quicker global LNG production, as encouraged diplomatically by the US in recent days, would not only test European import capacity but would also face constraints in feedgas supply availability and issues with existing contractual obligations.

Technical production capacity in the Atlantic basin is only marginally higher than Europe's import capacity of about 14.5mn t/month, excluding Russian independent firm Novatek's 17.44mn t/yr Yamal plant, which could also be subject to hypothetical sanctions.

Overall LNG production within the Atlantic basin has ranged from 8.88mn-11.6mn t/month throughout 2021, excluding 1.6mn t/month from Russia's Yamal LNG export project. With global LNG prices having climbed to multi-year highs in recent months, producers already had an incentive to push output to its limits, suggesting there is limited flexibility left with which to further ramp up production. LNG production from Trinidad and most of west Africa has remained well below capacity in recent months, mainly as a result of issues with upstream gas supply.

And while the majority of Atlantic basin cargoes are sold free of destination clauses, there are still some volumes that are tied to long-term contracts with Asian buyers. The US has long-term agreements with Asian buyers on a des basis totalling about 2mn t, which would limit the scope for all US supply to be shipped to Europe, although this would still leave about 7.2mn t of more flexible supply on a monthly basis.

US administration officials have been in discussion with suppliers outside the Atlantic basin, such as Qatar and even Australia. But Qatar may have limited uncommitted volumes to supply to Europe following the start of a number of new deals with Asian buyers at the start of this year. The country's 77mn t/yr Ras Laffan export complex ran at well above its nameplate capacity for nine months to meet the unexpected jump in Japanese gas demand in the aftermath of the Fukushima-Daiichi nuclear disaster in 2011. But while it may be able to use its peak production for a short period, it is unlikely to be able to sustain peak output for an extended period by postponing regular maintenance, as it could in 2011 when many of its liquefaction trains were still quite new.

By Ellie Holbrook

European LNG import terminals	mn t/yr
Name	Location	Import capacity
Zeebrugge	Belgium	7.2
Krk	Croatia	2.0
Fos Tonkin	France	1.2
Montoir-de-Bretagne	France	8.0
Fos Cavaou	France	6.5
Dunkerque	France	12.4
Revithoussa	Greece	4.9
Panigaglia	Italy	2.5
Adriatic LNG	Italy	5.7
OLT Toscana	Italy	3.0
Gate	Netherlands	8.7
Swinoujscie	Poland	3.9
Sines	Portugal	6.8
Barcelona	Spain	12.6
Huelva	Spain	8.7
Cartagena	Spain	8.7
Bilbao	Spain	5.1
Sagunto	Spain	6.4
Mugardos	Spain	2.6
South Hook LNG	UK	15.6
Dragon	UK	4.0
Isle of Grain	UK	14.8

Europe's LNG imports vs Russian pipeline supplymn t