Comment

LYDIA WOELLWARTH EDITOR

COMMENT

When considering gas trends for the year ahead, an abundance of factors come into play, and a recent report by Wood Mackenzie illustrates this.1 One rather large consideration is the commissioning of Nord Stream 2 – the controversial energy project that has been causing a stir for its environmental and political implications across Europe and the global gas market. Whilst construction of Nord Stream 2 was wrapped up in 2021, no gas has so far flowed through the US$11 billion pipeline, for reasons of compliance issues and legal grievances. This project is major for the gas industry because it is designed to double the quantity of natural gas arriving in Germany from Russia, to a figure of nearly 55 billion m3/y. However, its power is now going beyond the gas industry and into the political and military arenas.

The mounting tensions in recent weeks between Russia and Ukraine are turning Nord Stream 2 into somewhat of a geopolitical lever. Russia has recently amassed 100 000 troops on the country’s border with Ukraine, and Nord Stream 2 has been a focus of deliberations on implementing sanctions on Russia if an invasion of Ukraine were to take place. The US has threatened to freeze the opening of the pipeline, whilst Germany has suggested it would impose sanctions on Russia. Essentially, threats of conflict are being met with threats to energy supply, and given the astronomical cost of cancelling Nord Stream 2, this is a threat not to be ignored.

If sanctions on Russia were to be implemented, there is a fear over gas supplies to Europe, since Russian pipeline gas supplies are hugely relied upon on the continent. Ensuring sufficient supply to Europe could be problematic and LNG would need to step up its role, however there is not enough LNG import capacity to entirely replace Russian pipeline gas supplies, so there is a big dilemma here. In fact, even Australia – one of the world’s largest LNG exporters – has pledged that it would come to the assistance of Europe if a shortage of gas was to occur in the wake of a Russia-Ukraine conflict.

The hope is that the kick-off of Nord Stream 2’s operations will push gas prices down, however, the current uncertainty surrounding this date, with rumours of late 2022 circling (or no foreseeable date if Russia invades Ukraine), may see prices increase. This is concerning for gas supplies because the commissioning of the project may be the only available option to recover European gas storage inventories and prevent replicating the winter 2020/2021 energy crisis where gas storage facilities nearly ran dry.

Due to the dramas surrounding Nord Stream 2, Wood Mackenzie predicts 2022 will be an unsettled time in the global gas and LNG industry, but there are numerous other trends also anticipated this year. The report outlines how there is positive support behind new LNG projects, with 79 million tpy of additional LNG to take Final Investment Decision (FID) in the next few years. Additionally, there is detail on how global gas demand will remain robust in the short-term, largely due to its role in the energy transition, however looking further into the future this role will likely waver as gas prices remain high and other energies are comparatively more appealing.

The implications and longer-term concerns for European gas supply if Nord Stream 2 were to be halted are complex and widespread, but we shall watch this space to see whether Russia’s President Putin sends his troops into Ukraine or if they are just on a training exercise in a politically-antagonising location.

1. ‘Global Gas and LNG – 6 things to watch for in 2022’, Wood

Mackenzie, (January 2022).

Managing Editor James Little james.little@palladianpublications.com Editor Lydia Woellwarth lydia.woellwarth@palladianpublications.com Editorial Assistant Sarah Smith sarah.smith@palladianpublications.com Senior Editor Elizabeth Corner elizabeth.corner@palladianpublications.com Sales Director Rod Hardy rod.hardy@palladianpublications.com Sales Manager Will Powell will.powell@palladianpublications.com Production Calli Fabian calli.fabian@palladianpublications.com Digital Events Co-Ordinator Louise Cameron louise.cameron@palladianpublications.com Digital Administrator Lauren Fox lauren.fox@palladianpublications.com Video Content Assistant Molly Bryant molly.bryant@palladianpublications.com Admin Manager Laura White laura.white@palladianpublications.com

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