S&P Global Platts sees Russia dominating EU gas market at least until 2040
Despite the EU’s eagerness to diversify its gas supplies, Russian gas will continue to play a key role in the European energy mix in the next two decades, as LNG and pipeline gas from alternative suppliers remain more expensive, consider analysts.
Russia is set to remain the dominant gas supplier to Europe up to 2040, says S&P Global Platts Analytics citing its latest long-term European gas outlook. The agency expects annual supplies of Russian pipeline gas to Northwest, Central and Eastern Europe and Italy to rise from around 130 bcm in 2020 to around 150 bcm by 2040.
Europe’s domestic gas production and supplies from Norway have been declining for several years. According to the report, Norwegian piped gas supply will continue to gradually fall from the current volume of around 110 bcm per year to around 100 bcm by 2025. Then the rate of decline is meant to accelerate due to natural field exhaustion. At the same time, the share of global LNG supplies in Europe’s energy mix is expected to increase and partly offset the decline in indigenous output. Annual LNG supplies to Europe are forecasted to rise to around 90 bcm by 2025, peak at around 130 bcm in 2030 and drop back to 100 bcm in 2040.
In recent years, the EU has made it a policy pledge to reduce dependence on Russian gas seeking new supply sources and alternatives like LNG. Nonetheless, Russian gas remains attractive to European buyers due to its low-cost production base and long-term reliability. “By 2035, we expect a record Russia market share of 38%,” reads the report.
However, the outlook for European gas demand generally remains uncertain. In the more mature markets of Northwest Europe, Platts Analytics expects demand for gas to decline by 50 bcm per year by 2040 citing heating efficiency gains, electrification and renewables growth as drivers of this drop. Residential demand is likely to register the biggest decline, while industrial sector consumption will probably see a smaller drop due to challenges in electrification.
Meanwhile, Russian gas output is meant to grow significantly, as Moscow increasingly targets exports to China. “Reluctance in Europe to increase dependence on Russian gas and demand risk from the energy transition provide a strong incentive for Russia to diversify its export portfolio,” says Platts Analytics seeing China as a growing market for Russian pipeline gas. In December 2019, Gazprom began gas exports to the country via Power of Siberia. The pipeline is expected to reach its 38 bcm-per-year capacity in the coming years, and Power of Siberia 2 with a planned capacity of 50 bcm per year may come online in the second half of the decade. “The [...] pipeline would see Europe in direct competition with China for gas while providing Gazprom with insurance against energy transition demand risk in Europe,” states the report.
Besides, Platts Analytics expects Nord Stream 2 to be completed in 2022 and add a further 55 bcm per year of export capacity to Europe. The agency sees overall Russian gas production at 810 bcm per year and the country’s total gas exports at 390 bcm per year in 2040.