Russia’s invasion of Ukraine has highlighted the dangers of heavy-fuel energy dependency from the West and the rising viability of Liquefied Natural Gas (LNG) as an alternative.

Gas currently forms around a quarter of Europe’s energy, over 40% of which was previously supplied by Russia.¹ In response to the crisis, Germany has paused the licensing of Nord Stream 2 (NS2), a gas pipeline between Russia and Germany.²

Olaf Scholz, Chancellor of Germany declared, “The events of recent days and weeks have shown us that responsible, forward-looking energy policy is not just crucial for our economy and our climate. It is also crucial for our security. This means that the faster we make progress with the development of renewable energies, the better.”2

The UK is also pressing for an international restriction on Russian oil purchases, while the oil giant BP has confirmed it is abandoning its stake in Rosneft and any reserves that came from it.³

The question remains, how will Europe get its gas?

One alternative source of energy is LNG. LNG is the cleanest and most eco-friendly fossil fuel, releasing significantly less carbon dioxide, nitrogen oxides and sulphur dioxide into the environment. LNG is also easier and more economical to produce, and transport via shipping, compared to other fossil fuels.⁴

LNG already comprises around a quarter of Europe’s natural gas imports¹, but how much more LNG can Europe actually process?

Europe currently has a large capacity of LNG, with six Spanish LNG terminals in January producing 45% of Europe’s LNG import capacity, closely followed by the UK, France, Turkey and Italy.⁵

Also, Germany have announced plans to build two new LNG terminals in Brunsbüttel and Wilhelmshaven to further reduce their energy dependency on Russia.²

However, the biggest concern is the availability of LNG.

The price of LNG in north-west Europe grew by 29% in a day, following Russia’s invasion of Ukraine on February 24, 2022¹, and it just so happens that Russia provides around 40% of European LNG imports.⁶ This puts Europe in a vulnerable position, as there is growing concern that Russia could cut off Europe’s gas supply in retaliation to international sanctions.⁶

On the bright side, the European Commission is expected to enforce measures to help with high gas prices long-term. The measures will most likely include potential storage requirements and cushion prices for the industry and consumers using European carbon allowance sales.³

Other countries are coming to the rescue, with Japan, a major LNG importer, agreeing to provide Europe with additional LNG supplies this month. The total supplies of LNG are expected to be several hundred thousand tons. The Japanese government will also encourage domestic firms to divert their LNG imports to Europe from next month, once it has secured stable supplies.⁶ 

One of the biggest exporters of LNG, America, has promised to help secure new supplies of LNG for Europe. However, Saad Al-Kaabi the Energy Minister of Qatar (another huge LNG exporter) declared that it is “almost impossible” to quickly supply enough LNG to fill the gap left by Russian gas.¹

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References:

1. The Economist. "If The Supply Of Russian Gas To Europe Were Cut Off, Could LNG Plug The Gap?". The Economist. February 26, 2022. https://www.economist.com/the-economist-explains/2022/02/26/if-the-supply-of-russian-gas-to-europe-were-cut-off-could-lng-plug-the-gap. 
2. Naida Hakirevic Prevljak. "Germany To Break Free From Russian Gas With Two LNG Terminals". Offshore Energy. February 28, 2022. https://www.offshore-energy.biz/germany-to-break-free-from-russian-gas-with-two-lng-terminals/. 
3. Nikolaos Aidinis Antonopoulos. "Market Movers Europe, Feb 28-Mar 4: Ukraine Invasion Weighs On Markets, Policymakers Step In To Stabilize". S&P Global Commodity Insights. February 28, 2022. https://www.spglobal.com/commodity-insights/en/market-insights/videos/market-movers-europe/022822-ukraine-russia-oil-sanctions-opec-energy-gas-prices-tanker-freight-black-sea-baltic. 
4. SHV Energy. "What is LNG". SHV Energy. 2022. https://www.shvenergy.com/what-we-do/lng. 
5. Marwa Rashad & Isla Binnie. “Brimming European LNG terminals lack room for more gas”. Reuters. February 18, 2022. https://www.reuters.com/business/energy/brimming-european-lng-terminals-have-limited-space-more-gas-2022-02-17/. 
6. The Japan Times. “Japan and EU arrange additional LNG supplies to Europe over Ukraine”. The Japan Times. February 26, 2022. https://www.japantimes.co.jp/news/2022/02/26/business/japan-lng-europe-ukraine/.