GAS IMPORTS TO EUROPE: TESTING THE BOUNDARIES

The single biggest market uncertainty facing the European gas industry is the level that future Russian imports can attain and sustain. Faced with uncertain Russian volumes, liquefied natural gas (LNG) supply is sometimes portrayed as a substitute for growing dependence on Russian supplies. LNG will indeed play a growing role in the supply mix, but its contribution will be bounded by world developments. LNG should be seen more as a diversification around-rather than a substitute for-Russian piped gas. This report tests the boundaries for future Russian deliveries and the ability of LNG to accommodate any resulting shortfall or surplus in the European gas balance.

*The plausible range of uncertainty for what the annual level of Russian gas supplies to Europe might be by 2020 is a very wide 120 billion cubic meters (Bcm) per year-which compares with the current annual Russian deliveries into Europe of about 160 Bcm.

*In a Russia-constrained case, LNG supply could manageably meet the shortfall if Russian deliveries fall to around 100 Bcm per year. LNG would struggle to meet the shortfall if deliveries fall below this critical 100 Bcm threshold.

*In an aggressive Russian export strategy case, pipeline supply would increase to the point that there would be significant spare LNG regasification capacity-pushing average LNG regas utilization rates down to 30 percent.

The impact on LNG flows of Russia's gas export strategy is sufficiently large to have far-reaching implications not just in Europe, but across global gas markets, with the most direct effect on LNG imports into North America.

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