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Europe imports about 40 percent of its gas, and Germany 55 percent, from Russia. If those deliveries were to stop—either by Western sanction or by Russia’s decision—there is not enough extra gas to be found elsewhere in the world to replace it.
Finding replacements for Russia’s gas is “impossible,” chief gas researcher Giles Farrer at consulting firm Wood Mackenzie told the Financial Times.
Gas production around the world already is running flat out and “there’s nothing else out there,” he said.
Gazprom, Russia’s largest gas company, produced 540 billion cubic meters last year, more than BP, Chevron, ExxonMobil, and Saudi Aramco combined, according to Wood Mackenzie.
Of that, 168 billion were piped to Europe.
Oil producers tend to hold some production capacity in reserve to adjust to market ups and downs, but gas producers tend to run at full capacity, the FT noted.
Iran is the world’s largest gas producer after Gazprom. Iran yielded 291 billion cubic meters of gas last year, Wood Mackenzie data shows, but 280 billion were burned inside the country.
A renewed nuclear treaty with Iran could open the country’s gas supplies to the world, but moving them would require building either pipelines or liquefaction terminals, either of which would take years to complete.
Algeria supplies some gas to Europe through pipelines under the Mediterranean Sea and could send more. However, the pipeline flows through Morocco, which has shut down the line as part of a political conflict with Algeria.
Even if that conflict is resolved, any increase in Algeria’s production would first be used to fill a growing domestic demand, consultant James Waddell at Energy Aspects told the FT.
Norway could add up to five billion cubic meters each year to its European deliveries and Azerbaijan three billion, the Oxford Institute for Energy Studies has calculated, but those increments would be trivial compared to the 168 billion that Europe would need to replace.
“The hope” for Europe to replace Russian gas “is U.S. LNG”—liquefied natural gas, Waddell said.
The U.S. is the world’s third largest exporter of LNG, after Australia and Qatar, shipping 71 million tons last year.
However, replacing all of Russia’s gas in Europe would require 112 tons, according to Bernstein Research, which is about a third of the world’s current market.
The U.S. has pledged to send Europe an additional 15 billion cubic meters of LNG this year and unspecified additional amounts in the future, but the sources of that additional gas are unknown.
Responding to the world’s growing demand, U.S. producers are likely to add enough new LNG projects to raise production to 200 million tons annually by 2030, making the U.S. the world’s LNG chief exporter.
However, U.S. oil and gas producers have so far refused to raise output; their investors have insisted that the companies rebuild cash stockpiles and reward shareholders with higher dividends instead of investing in expanding their output, as we reported in “U.S. Oil Industry Will Not Raise Output, Executives Say” (29 Mar 2022).
A new Qatar LNG project is scheduled to begin production in 2025, raising the country’s possible exports from the current 86 million tons to 100 million in 2026.
Unable to replace Russian gas, Europe would have to cut gas use.
“The [cut] that is technically feasible and most palatable is to remove it from industry,” Waddell said.
“That means huge GDP cuts, job losses, rather than allowing people to freeze in winter,” he added.
TREND FORECAST: In the short term, shortages and soaring prices will continue to define Europe’s natural gas market. Coal use will increase; nuclear plants scheduled to be decommissioned will be drafted to continue.
The European Union will throw every source of energy it can muster into its power grid to defend against Russia’s whimsical dominance over its gas supply.
Meanwhile, Europe has drafted, and begun enacting, a 10-point plan to wean the continent from Russia gas by the end of this decade. Their plan is to leave Russia as the long-term loser in this contest.
But “plans” do not manifest themselves as planned, and by the end of the decade there are unforeseen actions with consequences that cannot be predicted… which means Europe will need what Russia has.
On the downside, for Russia, it cannot easily redirect the gas it sends to Europe because Russia lacks enough pipelines to sell the same amount of gas into China or other surrounding nations.
Markets will exist for Russian gas, but the country will have to heavily invest, and years of construction, to build the necessary pipelines, LNG terminals, and other infrastructure to move it.