Per reporter: Lan Suying Zhang Lingxiao Per reporter: Lan Suying
Following Germany's announcement of the suspension of the Nord Stream 2 gas pipeline between Germany and Russia, the United States stepped up sanctions against Russia in the early morning of February 24, Beijing time, announcing new sanctions against Nord Stream-2 and its managers. US President Joe Biden also said on the same day that he was monitoring the situation at the White House and would hold a meeting with the leaders of the Group of Seven (G7) on the morning of the 24th, and would also announce further measures taken by the United States and its allies against Russia.
Nord Stream-2 is a major energy artery running through northwestern Europe, covering a total of about 1,200 kilometers and costing nearly 10 billion euros, directly connecting Germany and Russia across the Baltic Sea.
With the "big stick" of sanctions between the United States and Europe falling, in the early morning of the 24th, Russian President Putin made a speech and announced the launch of "special military operations" in the Donbass region of Ukraine. According to reports, Russian troops have now landed in Mariupol and Odessa, Ukraine. On the same day, following the announcement that the whole territory would enter a wartime state and the closure of all airspace, the Ukrainian side announced the severance of diplomatic relations with Russia.
The escalating situation in Russia and Ukraine has added a lot of uncertainty to the future of the ill-fated Nord Stream-2 project. At the same time, there are growing concerns about the possible disruption of russian gas supplies to Europe via Ukraine, and European energy prices have risen sharply. As of press time, the Price of dutch TTF benchmark natural gas futures, which is regarded as the "weather vane of European gas prices", rose for the fourth consecutive trading day, rising more than 19% to 106.1 euros / MWh, an intraday increase of 41%.
Is Europe's energy security threatened against the backdrop of the escalation of the situation in Russia and Ukraine? Will natural gas prices "skyrocket"? Can U.S. LNG supplies quench Europe's energy thirst?
The "big stick" falls
In the early morning of February 24, Beijing time, US President Biden announced that he would sanction nord Stream 2 AG, a Nord Stream 2 pipeline company that connects Russia and Germany, as part of the first batch of sanctions against Russia's actions in Ukraine. Nord Stream 2 AG is parent company of Gazprom, a Russian gas giant.
The day before, Germany had announced the suspension of the certification process for the Nord Stream-2 gas pipeline project.
Nord Stream-2 is an undersea gas pipeline from Ustiluga, Russia, through the Baltic Sea to the german city of Greifswald, and is a parallel line of the line "Nord Stream-1" opened in 2011, with a transmission capacity of 55 billion cubic meters per year. The pipeline is the product of cooperation between Russia and Germany and some European countries, signed a construction agreement in June 2015, but since then it has been blocked by many parties from within Europe and the United States represented by Ukraine, until september 2018, when the construction was officially started, during which it was stopped for one year, and the construction was completed in September 2021, but the completion has been idle, waiting for certification from Germany and the European Union.
If Nord Stream-1 and Nord Stream-2 operate at the same time, Russia's annual transmission of natural gas to Europe via the Baltic Sea will double to 111 billion cubic meters, which can meet about 1/4 of the gas demand of EU countries. Moreover, an analysis report by Huachuang Securities shows that "Nord Stream-2" also has a strong economy, because the gas transmission distance is shortened by about 2,000 kilometers compared with the land, "Nord Stream-2" can reduce the overall import price of European natural gas by about 13% after ventilation, saving about 8 billion euros in import costs for Europe every year.
However, as the "stick" of U.S. and German sanctions falls, Europe's natural gas supply is bound to be hit hard.
The crisis in Europe
Russia is reportedly the EU's largest source of natural gas, accounting for about 40% of EU imports. At the same time, the EU is also Russia's largest export market. According to the data, in 2019, Russia's natural gas exports were 236.9 billion cubic meters, of which exports to Europe were 192.6 billion cubic meters, accounting for 81%.
According to the IEA's 2020 report, Europe's energy demand remains strong, with European natural gas imports set to grow by more than 10% over the next five years. The high-frequency data of European natural gas stocks show that the current inventory level is still difficult to change the downward trend, which is at a low level in the past year. At present, there are 8 main russian gas pipelines to Europe, of which the Yamal-European pipeline to Germany changed its flow direction at the end of 2021, and the other 3 pipelines through Ukraine have become unstable due to the current situation in Ukraine.
Kpler, a well-known commodity data provider, told the "Daily Economic News" reporter that if the situation between Russia and Ukraine escalates and Russia decides to close the natural gas pipeline through Ukraine, the central region of Europe will lose 35 million cubic meters of natural gas supply every day, and if the "Nord Stream-1" natural gas pipeline will also be affected, then the daily natural gas supply in the region may also face a loss of 166 million cubic meters. For comparison, in the first 11 months of 2021, the EU consumed a total of 363.3 billion cubic meters of natural gas, with a daily consumption of about 1.08 billion cubic meters.
In this situation, the market is worried that the Us and Germany sanctions on the Nord Stream-2 gas pipeline project and the likely resulting Russian cut off of gas supplies to Europe via Ukraine will exacerbate the gas crisis in Europe, and the price of natural gas in Europe remains high. After the U.S. announced sanctions on the Nord Stream-2 project, the price of Dutch natural gas near-month futures, a European TTF benchmark, rose 9.602% at 87.45 euros/kWh at The close on Wednesday.
Gazprom had previously expected the average price of its contracted natural gas exports to be $296 per 1,000 cubic meters in 2022, however, prices on the European spot market are now as high as about $900 per 1,000 cubic meters.
Former Russian President and current vice chairman of the Russian Safety Council, Medvedev, even said on Twitter that (Germany's suspension of the "Nord Stream-2" project certification) is expected to cause The price of natural gas in Europe to soar to 2,000 euros per thousand cubic meters. "Europeans will soon have to pay 2,000 euros for every 1,000 cubic meters of gas!" He said.
Kpler told the Daily Economic News that if Russia's gas supply into Europe is further reduced, the price of gas in Europe may remain above 70 euros / kWh.
Is the ill-fated Nord Stream-2 project really going to be abandoned? Rystad Energy analyzed in a report sent to every reporter that if it really abandons the operation of the Nord Stream-2 pipeline, Germany will be one of the most affected countries. Given that about 57 percent of Germany's gas imports last year came from Russia, Germany is unlikely to easily make the decision to abandon the pipeline, Rystad Energy said. As originally planned, after nord stream-2 began operations, the amount of natural gas exported from Russia to Germany would double.
Economic game
On the surface, the current heating up situation in Russia and Ukraine is the result of a geopolitical game, but in fact, there is also a hidden competition for economic interests behind it.
The data shows that since 2021, Europe's natural gas reserves have been at the lowest level in 5 years. Rystad Energy believes that given that Natural Gas exports from Africa are declining and Europe is less likely to increase domestic gas production capacity, the European region may have to switch to sourcing liquefied natural gas (LNG) to secure its gas supply.
At the same time, due to the rapid growth of domestic LNG production capacity and the continuous acceleration of LNG liquefaction plant construction, the United States has been committed to opening up overseas markets.
According to the U.S. Energy Information Administration (EIA), as of November 2021, the liquefaction capacity of LNG in the United States is approximately 9.5 billion cubic feet (about 269 million cubic meters) per day, with a peak of 11.6 billion cubic feet (about 328 million cubic meters) per day. According to the data, the production capacity of the United States in 2022 is expected to reach about 100 million tons, an increase of about 20% year-on-year.
In addition, by the end of 2022, the United States is expected to have seven LNG production facilities consisting of 44 units, with an overall liquefaction capacity of 11.4 billion cubic feet (about 323 million cubic meters) per day and a peak capacity of 13.9 billion cubic feet (about 394 million cubic meters) per day. By then, the United States will surpass Australia and Qatar to have the world's largest LNG export capacity.
For the United States, finding buyers for new capacity is a top priority. Europe is of high strategic value to U.S. LNG exports, while Russia, which has abundant natural gas resources, is the main competitor of the United States in the region. The United States hopes to strengthen its energy ties with the region by increasing LNG exports to Europe. According to the U.S. Energy Information Administration, U.S. LNG exports to Europe nearly doubled in January 2022 from November last year.
However, Ruth Liao, LNG editor of the U.S. region of global petrochemical information service ICIS, told the Daily Economic News that although the United States has increased the number of LNG ships shipped to Europe, Europe's LNG import capacity is limited by infrastructure conditions, and the role of making up for natural gas supply is still limited.
Kpler senior LNG analyst Laura Page also explained to reporters that major European natural gas consumers such as Germany have not made sufficient investment in LNG imports, so some natural gas regasification projects have not landed, and their regasification capacity cannot be improved in a short period of time. Judging by the LNG imports in January, Spain is the only European country to increase LNG imports.
Dmitry Marinchenko, senior director of Fitch's natural resources and energy programs, told reporters that Europe as a whole, and Germany in particular, will continue to rely on Russian gas for at least 3-5 years. Given the global lack of spare LNG production capacity, Russia's position cannot be replaced immediately.
In fact, the importance of Russian natural gas to Europe can also be seen from the latest statement of the energy minister of Qatar, an important exporter of the global LNG market, in recent days. He said that if the conflict between Russia and Ukraine causes gas supplies to be interrupted, Qatar or any other country will not have the capacity to replace Russia's gas supply to Europe with LNG.
But in the longer term, Malinshenko believes that Germany and other European countries are likely to be biased to rely on LNG resources, including the United States LNG, but at the same time, it will also accelerate the pace of energy transition.
Russia's retreat
If the sanctions really affect Russia's natural gas supply to Europe as the situation in Russia and Ukraine intensifies, what kind of changes will the export pattern of Russian gas change?
In fact, demand for Russian gas in Eastern Europe and Asia has been growing recently.
At the beginning of 2022, Gazprom signed new long-term agreements with TURKEY BOTAS and PetroChina, under which Gazprom will supply up to 5.75 billion cubic meters of natural gas to BOTAS per year and 48 billion cubic meters of natural gas to PetroChina. According to previous year data and new contract information, Gazprom is expected to export at least 30 billion cubic meters of natural gas to Turkey and at least 48 billion cubic meters of natural gas to China in 2022, for a total of about 80 billion cubic meters, almost double that of 2021.
In addition, some Eastern European countries have also agreed on new agreements with Gazprom. It is worth noting that among global buyers, China is one of the countries with the most significant growth in Russian gas imports.
Customs statistics show that China, as the world's largest importer of natural gas, will consume 367 billion cubic meters of natural gas in 2021, while domestic natural gas production will only reach 206 billion cubic meters, and the import dependence will reach about 44%, and the total import of natural gas will reach 169.9 billion cubic meters in that year, an increase of nearly 20% year-on-year. Troy Vincent, senior market analyst at DTN Markets, a market research firm, believes that China may import more natural gas from Russia at a more favorable price against the backdrop of sanctions on Russia due to the improvement of China's pipeline infrastructure with Russia.
Against the backdrop of this year's turbulent Russian weather export market, China's natural gas market has also been affected. According to iFind data, the natural gas index has risen by 9.65% in the past month and has risen by 42.83% this year.
Chen Zhanming, deputy dean of the School of Applied Economics at Chinese Min University, also believes that "although the mainland's domestic natural gas production has maintained steady growth in recent years, consumption has grown more rapidly, the domestic supply and demand imbalance has continued to expand, and the mainland's dependence on natural gas has continued to rise." The tension of overseas natural gas will inevitably have an adverse impact on the supply of natural gas on the mainland. ”
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