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European Natural Gas Update

A prediction: European addiction to Russian gas is likely to continue

Europe, especially Central and Eastern Europe, continues to be at risk of a Russian cutback in natural gas deliveries this winter.

The dismal statistics from my July 9 blog summarize the problem: 16 percent of Europe’s gas supply comes through Ukraine. Slovakia and Bulgaria get 80 percent and 90 percent, respectively, from Russia via Ukrainian pipelines.  

On October 21, Russia, Ukraine and the European Union failed to reach agreement on selling Russian gas to Ukraine. This situation could easily change—several times--before you read this blog, but a favorable outcome for Ukraine seems unlikely.

Meanwhile, in June the United States House of Representatives passed H.R. 6, the Domestic Prosperity and Global Freedom Act, which would direct the U.S. Department of Energy to issue a quick decision on an application to export natural gas--generally within 30 days. The bill’s sponsor, Cory Gardner (R-Colo.) praised the bill stating the widely held opinion that the U.S. natural gas exports can reduce European dependence on Russian natural gas.  

A recent Brookings Energy Security Institute publication, “Business As Usual: European Gas Market Functioning in Times of Turmoil and Increasing Import Dependence," provides a convincing argument that Europe will continue to depend on Russia for the majority of its natural gas well into the future. The authors suggest that U.S. liquefied natural gas (LNG) volumes purchased by Europe will be equivalent to the decline in European domestic production, not a replacement for Russian imports.

I recommend that you read the entire report, which carefully dissects Europe’s efforts to move from member-state markets to an integrated European market, and models the supply impacts of various diversification efforts.


Elements of the report applicable to U.S. LNG exports:

  • There are 22 LNG import/regasification terminals in Europe, primarily in Spain, Italy, the UK and France. The terminals have the capacity to import almost 7 trillion cubic feet (tcf) per year, equivalent to 35 percent of Europe’s consumption, and more than is imported from Russia (5.7 tcf in 2013). However, these facilities are operating at an average 20 percent of capacity—European LNG imports were only 1.4 tcf in 2013.
  • The Brookings analysis finds that European LNG imports will be constrained by large and growing Asian demand: 75 percent of global LNG trade took place in Asia in 2013, and demand will grow. Today and going forward pipeline imports or domestic European production will win out over LNG imports based on price.   
  • In the baseline model, European gas production is predicted to decline while demand increases. The domestic share of the market declines from about 45 percent in 2015 to 35 percent before 2030. In the model, LNG imports grow from less than 15 percent of the market to 25 percent in 2040, with North America providing about 1.4 trillion cubic feet--less than one-third of 2040 LNG imports.