- Europe is concerned about a natural gas supply disruption tied to Russia’s invasion of Ukraine.
- Russia is a major gas exporter to Europe, accounting for about one-third of demand.
- Europe is likely to seek alternative energy sources such as US LNG, boosting demand for the commodity.
US liquefied natural gas (LNG) could get a demand boost from Europe as buyers look for alternative supplies after Russia invaded Ukraine.
Russia is a major gas exporter to Europe, accounting for about one-third of the European Union and the UK’s demand in 2021, according to the International Energy Agency.
Most of the Russian gas to Europe is transported via pipelines that run through Ukraine, which could be damaged in the war. There are also fears the Kremlin may cut off natural gas supply to Europe to retaliate against sweeping Western sanctions.
The conflict is “encouraging gas buyers to look for supply outside of Russia,” said Ross Wyeno, lead analyst for LNG Americas at S&P Global Platts Analytics.
The development would intensify European demand for US LNG — the supercooled version of natural gas that can be transported on ships over long distances — which was already on the way up before the war in Ukraine.
In February, Europe held its position as the top importer of US LNG for the third straight month, accounting for nearly three-quarters of exports, according to Reuters, citing preliminary vessel tracking data from Refinitiv.
The jitters over European energy security have pushed up natural gas prices with benchmark futures on the New York Mercantile Exchange up 25% year-to-date. The US’ top LNG producer, Cheniere Energy, has also gotten a boost, with its share price up 26% year-to-date.
However, even with an increase in LNG exports from the US and elsewhere, Europe would be hard-pressed to replace all the Russian gas it’s importing now. That’s because the LNG has to be converted back into gas at terminals before it’s being transported via pipelines again.
Regasification capacity in Europe was already at 100% in January, according to energy research firm Rystad Energy. “Spare capacity to accommodate a future increase in import volumes is minimal,” the company wrote in a February 9 release.
Germany is already stepping up its LNG game, announcing two new terminals earlier this week. The country scrapped plans for the Nord Stream 2 gas pipeline after Russian President Vladimir Putin sent troops into Ukraine.
The US is also expanding its LNG capacity and is expected to be the world’s largest exporter of the commodity by the end of 2022, according to the US Energy Information Administration.
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