The European Union's decision on the route and volume of natural gas flow through Russia's new pipeline infrastructure, namely the Nord Stream 2 and TurkStream pipelines, remains critical to meeting Europe's requirement for liquefied natural gas (LNG), according to an expert at Wood Mackenzie late on Tuesday.
Murray Douglas, research director of Europe gas at Wood Mackenzie, believes Europe's appetite for gas has undergone a renaissance in recent years.
Douglas said that by 2025, Europe would require an additional 79 billion cubic meters per annum of imports versus 2018 levels, which are comparable to the size of Europe's largest gas market, Germany.
Russia's new gas infrastructure with the two new pipelines will mean that Europe's market space can open up for LNG suppliers and for more Russian supplies, he argued.
He maintained that Russia would increase volumes through its new pipeline infrastructure but that it eventually would hit constraints without further capacity growth – especially on a seasonal basis.
"The level of supply flexibility to the European market diminishes as Europe's indigenous supply falls and risks to proximate legacy piped supplies grow," he said noting that these risks have resulted in higher gas prices in Europe in 2018.
He highlighted that global LNG supply growth over the next few years would mitigate Europe's lack of supply flexibility but cautioned that the market would tighten again.
"If a subsequent wave of LNG supply does not progress, competition in the global LNG market will intensify," he said, adding that the strategies of European gas buyers will be put to the test.
However, contrarily, he said if the next wave of LNG supply progresses as the consensus suggests, the European market would continue to enjoy the benefits as a liquid market available for LNG volumes.
However, he underlined that any downside to LNG supply growth would necessitate a lift in European prices to a level where they must become competitive with Asian buyers," he said.
According to Wood Mackenzie's data, the current average for Europe LNG price is trading around $9.35 per million British thermal units (for delivery in October), whereas the average LNG price for the Asian market is around $12 per million British thermal units (for delivery in November).
By Gulsen Cagatay