Impact of Russia-Ukraine war on European gas markets - 28th February 2022
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Impact of Russia-Ukraine war on European gas markets 28th February 2022 © Aurora Energy Research Ltd.
Executive A Russian war on Ukraine could result in a disruption to Russian gas and coal supply to Europe. This report examines the
impact of a delay to the Nord Stream 2 pipeline and a potential halt to Russian gas transit through Ukraine on gas
markets in northwest and southern and eastern Europe
Summary
Europe depends heavily on Russian gas to meet its needs, around 30-40% of Europe’s supply mix but higher in some
southern and eastern countries. Russian gas to Europe has increased since the 1980s but dipped in 2020 and 2021
After tensions escalated and Germany halted certification of Nord Stream 2. European gas prices rose by 28% week-on-
week1, and power prices rose by 38%2. We explore the impact on flows of three scenarios
In this free report we examine the 1. Nord Stream 2 comes online in 2025, a two-year delay relative to our previous Central scenario, and transit through
impact of a delay to the Nord Stream 2 Ukraine does not exceed 40bcm/a
pipeline, and a delay combined with a ➢ With a two-year delay to NS2 to 2025, LNG deliveries to Europe reach 110bcm by 2024, but fall the next year as
halting of Russian natural gas transit Russian supply rises. Regasification capacity reaches close to maximum in some periods
through Ukraine, on supply in 2. Nord Stream 2 comes online in 2025, but transit through Ukraine ceases from 2022
European markets
➢ A complete loss in Ukrainian transit boosts LNG imports, before NS2 starts up. Total Russian pipeline gas to Europe
remains below historical levels for the next decade and there is a risk of not enough supply to Ukraine
3. Nord Stream 2 is cancelled but transit through Ukraine can continue at 40bcm/a
➢ Total Russian gas to Europe slips to 2020 pandemic levels, and remains broadly unchanged over the decade. LNG
increases to compensate, and we expect this will come at higher cost, keeping European gas prices elevated
▪ There is insufficient LNG and downstream capacity available to offset a full loss in Russian gas supply to Europe. Other
supplies would have to step up in this extreme case
▪ Many questions over the war remain unanswered, and even deeper cuts or a complete halt to Russian gas deliveries
could make it difficult, if not impossible, for Europe to meet its gas import needs without cutting demand
1) TTF front-month contract 2) German baseload power front-month contract
Source: Aurora Energy Research 2Agenda
I. European reliance on Russian gas and coal
II. Nord Stream 2 suspension and Ukraine war, and impact on gas and power prices
III. Russian gas transport medium-term scenarios
1. Suspension until 2025 of Nord Stream 2
2. NS2 Suspension combined with disruption to Ukraine transit flows
3. Full cancellation of Nord Stream 2
IV. Potential for congestion in Europe and shortages
V. Takeaways
3European reliance on Russian gas and coal
Russia meets around 30-40% of gas demand in Europe and is the
largest single supplier
Gross European gas imports1 Percentage of European imports2 ▪ Europe’s gas demand is met
bcm % through three primary sources,
+22% -7% of which Russia is the largest
500 100 single supplier. The share of
460 4 4 4 4 4 4
Russian gas has been
450 426 430 19 428 15 14 15 consistently above 40% on an
17
393 17 17 19 25 27 annual basis
400 377 80
16 65 71 119 8 10 9 ▪ European gas imports from
16 9
350 56 115 6 Russia increased steadily year-
56 37 37 6
27 on-year between 2015 and
300 30 39 60 28 27 27
25 25 2019, before dropping 7% in
24 24 2020 due to weak gas demand
250 114 111 104
106 106 and prices due to the pandemic
102
200 40
▪ As a share of European pipeline
150 imports, Russian supply
remained relatively stable at
20 45 45 45 45 41 about 45% in 2019 and 2020
100 176 193 193 192 39
169 168
50
0 0
2015 2016 2017 2018 2019 2020 2015 2016 2017 2018 2019 2020
Russia Norway Africa LNG Other
1) Pipeline flows. Includes Turkey and Baltic states. 2) LNG import composition in 2020 by exporting country: Qatar 26%, US 22%, Russia 15%, Nigeria 13%, Algeria 12%, Norway 4%, Other 8%.
Sources: Aurora Energy Research, BP Statistical Review of World Energy 2021 4European reliance on Russian gas and coal
Russian gas flows through the Ukraine route in 2021 more than
halved compared to 2019, but Yamal flows fell even further
▪ In January 2020, Ukraine’s
Russian gas deliveries to Europe, excluding Turkey and the Baltics vs capacity1 transit flows fell sharply, to
mcm/d 82mcm/d, down from
Russia & Ukraine sign new 245mcm/d on average in 2019.
650 transit contract for much This was a result of Russia’s
lower capacity volumes long-term transit contract
600 expiring
550
▪ Gazprom signed minor five-year
500 booking for 2020-24
450 − Sunk cost of Ukraine
400 bookings encourages
continued use
350
▪ The Yamal route also flowed
300 close to maximum capacity until
250 the middle of 2021:
200 − Long-term pipeline capacity
bookings expired in May-20
150
− Shorter-term bookings
100 continued through 1H21 but
50 flows slowed in 2H21
0 − Lack of long-term bookings
Feb- Aug- Feb- Aug- Feb- Aug- Feb- Aug- Feb- Aug- Feb- Aug- Feb- Aug- Feb- leaves Yamal-Europe as
15 15 16 16 17 17 18 18 19 19 20 20 21 21 22 Gazprom’s flexible route
▪ Flows through Nord Stream 1
have remained relatively stable
Ukraine transit Yamal-Europe Nord Stream 1 capacity TurkStream capacity ▪ TurkStream has ramped up
TurkStream Nord Stream 1 Yamal-Europe capacity Ukraine transit capcaity since starting in Jan-20
1) Shown capacities (dashed lines) are cumulative, starting from Nord Stream 1, Yamal-Europe, TurkStream and Ukraine. Other marginal routes, including about 15.7mcm/a of additional capacity
at the Belarus-Poland border were excluded
Source: Aurora Energy Research 5European reliance on Russian gas and coal
Several countries in Europe rely on Russia for over half of their gas
needs, particularly in southern and eastern Europe
▪ Reliance on Russian gas is much
higher in central and eastern
Europe than in western Europe
and is nearly 100% in some
countries in south-east Europe.
75 – 100% However, the integrated hub
structure of European markets
50 – 75%
Finland means that Eastern Europe gas
Nord Stream 12 25 – 50% fundamentals would impact NW
Sweden
0 – 25% European gas markets.
Estonia
Latvia
Yamal route ▪ Ukraine is an exception, as it
Lithuania does not directly import gas
Netherlands Belarus from Russia
UK Poland
Germany
Ukraine route − It still relies on Russian gas
Belgium
Czechia delivered to its western
Ukraine neighbours through its
France Austria
Hungary territory and then redirected
Romania
eastward
Serbia
Italy Bulgaria TurkStream
▪ Ten EU Member States
Spain (Bulgaria, Czechia, Estonia,
Portugal Greece Turkey Latvia, Hungary, Austria,
Romania, Slovenia, Slovakia and
Finland) sourced more than 75%
of their gas imports from Russia
in the first half of 2021
1) Pipeline + LNG flows. Share % of trade in value. Extra-EU trade flows (no intra-EU trading). 2) The Nord Stream 2 pipeline will follow a near identical route
Sources: Aurora Energy Research, Eurostat database Comext 6European reliance on Russian gas and coal
European indigenous gas production is in significant decline, which
will increase its reliance on imports including from Russia
European indigenous gas production, Aurora central scenario ▪ In our Central scenario,
bcm European gas production is in
-34.9% steady decline as fields mature
150 145 144
139 ▪ By 2030, we expect gas
140 production to have more than
130
130 halved from 2022 forecast
121
120 production
58 58
110 59 107 ▪ In slides 24-26, we explore
100 57 production forecasts under
94
54 different Nord Stream 2
90 -57.1% scenarios
80 48 75
37 ▪ Production fell by 35% from
70 65 2015 to 2021 with a 6.9%
41 42
60 42 27 57 compounded annual decline
50 41 26 45
40 22 ▪ UK production has remained
39
40 40 36 15 35 32 relatively stable from 2015 to
31 32
30 36 13 2021, but Dutch output declined
12
46 33 10 13 15 by 52% over the same period
20 44 29
38 32 25
28 23 20 − Lower Dutch output was
10 20 22 18 16 15
12 driven by governmental
0 7 5 4 4 3 3 2 2 actions to reduce output
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 from the Groningen field and
prevent local earthquakes
Netherlands UK Other1
1) Other: Romania, Poland, Italy, Germany, Denmark.
Sources: Aurora Energy Research, BP Statistical Review of World Energy 2021, Jodi Gas database 7European reliance on Russian gas and coal
North West European LNG regasification facilities have been running
near full utilisation in 2022, leaving little additional flexibility
NW Europe LNG terminal utilisation rate NW Europe unused LNG regasification capacity Little spare regasification capacity
% bcm
▪ European LNG terminals
100% 10
typically underused
90% 9 − But varies seasonally, with
the heaviest use in Feb-May
80% 8 − Much lighter use in summer
70% 7
▪ But LNG receipts reached a
60% 6 record high in Jan-22, leaving
sendout capacity almost fully
50% 5 utilised in Jan-22 to Feb-22
− Little scope to lift LNG
40% 4
receipts further, even if
global supply is available
30% 3
− Only could add 2.5bcm in Jan
20% 2 and under 700mcm in Feb
− LNG capacity is insufficient to
10% 1 offset a total halt to Russian
imports
0% 0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Feb- Jun- Oct- Feb- Jun- Oct- Feb- Jun- Oct- Feb- − LNG would mostly arrive in
19 19 19 20 20 20 21 21 21 22 NW Europe and only add to
congestion
2017 2019 2021 − CEE terminals are limited in
2018 2020 2022 capacity and routes to market
1) LNG utilisation reflects regasification send-out to the high pressure network and capacity in the UK, Netherlands, Belgium, and France.
Sources: ENTSO-G, National Grid, Aurora Energy Research 8European reliance on Russian gas and coal
European gas demand is expected to be fairly stable to 2030, driven
by coal and nuclear exits offsetting renewables growth
Natural gas consumption in Europe1 in Central scenario ▪ Gas demand in Europe is expected
bcm to remain reasonably stable over
the next decade
600
− Demand in any given year is
highly dependent on weather
-0.5% and fuel-switching levels
500 493 486 between gas and coal
474 470 469 469 470 471 472 471
− Pending coal and nuclear exits
support some consumption
growth in regional markets
400
− Slower economic expansion and
quicker deployment of
renewables keep Europe’s gas
300 demand growth muted relative
to other markets, despite the
shift away from other power-
sector fuels
200
▪ After 2030, demand gradually
declines due to environmental
policies and the continued growth
100 in renewables
0
2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
1) Europe includes the EU 27, United Kingdom, Switzerland and Norway
Source: Aurora Energy Research CONFIDENTIAL 9European reliance on Russian gas and coal
North West European storage inventories remain below the five-
year range
NW Europe storage inventories
bcm
60 Low Russian flows caused Warmer than average 60
by a fire at a major NWE starts the winter season weather across NWE and
55 with 25% less in storage than 55
production plant and tight record-high LNG sendout
Lift of lockdowns and high seasonal spreads result in the five-year average 50
50 reduce withdrawal demand
vaccination rates in NWE slow injections
45 increase gas demand 45
40 40
35 Cold weather delays switch 35
to injections by ~one month
30 30
25 25
20 20
15 15
10 Inventories near lower 10
bound of min-max envelope
5 for first time since May 2021 5
0 0
Feb-21 Mar-21 Apr-21 May-21 Jun-21 Jul-21 Aug-21 Sep-21 Oct-21 Nov-21 Dec-21 Jan-22 Feb-22
Total inventories Min-max envelope (Dec 15- Feb 20)2
1) Storage data is based on net daily flows. Last update: 25 Feb 2022 2) Envelopes are calculated by taking the maximum and minimum monthly values between December 2015 and February 2020 (pre-pandemic).
Source: Aurora Energy Research EOS 10European reliance on Russian gas and coal
Russia is also Europe’s main supplier of coal, supplying over half of
the total in 2021
European total coal imports1 in 2020 ARA coal inventories at Ovet terminal in the ▪ Europe depends on Russia for
% Netherlands most of its coal imports, in
‘000t addition to gas and other fuel
55% 600 -43% sources
▪ More than half of Europe’s coal
50% 550 imports came from Russia in
500 2020
45%
− The largest importers were
450
40% 5yr avg Germany and the
400 Netherlands
35%
350 ▪ Shipping costs for potential
30%
alternative supply sources
300
25% 50.3% (Colombia, US, Australia, South
250 Africa) are much higher due to
20% the higher distances
200 ▪ Import needs could be
15% exceptionally high in 2022 due
150
to low coal inventories
10% 100
17.2% 15.4% − Strong gas-to-coal switching
5% 8.5% 50 drew down inventories in Q4
6.7% 2021
0% 2.1% 0
Russia Colombia US Australia Other S. Africa Jan Apr Jul Oct − Coal stocks at the Dutch
Vlissingen Ovet terminal in
the ARA market were 30%
below 5yr average
2021 2022
1) Thermal + coking coal
Sources: Aurora Energy Research, BP Statistical Review of World Energy 2021, Refinitiv Eikon 11Agenda
I. European reliance on Russian gas and coal
II. Nord Stream 2 suspension and Ukraine war, and impact on gas and power prices
III. Russian gas transport medium-term scenarios
1. Suspension until 2025 of Nord Stream 2
2. NS2 Suspension combined with disruption to Ukraine transit flows
3. Full cancellation of Nord Stream 2
IV. Potential for congestion in Europe and shortages
V. Takeaways
12Nord Stream 2 suspension and Ukraine war
Developments in Nord Stream 2 and Russian gas transit since 2010
Key
Nord Stream 2 Russia Europe
Dec-2021 Feb 22nd
Gazprom completes Germany halts
NS2 technical works. certification of
Local certification in NS2, and US
Germany is still pending imposes additional
2015
2011 sanctions
Gazprom and five
Plans for Nord
companies1 agree Dec-2019
Stream 2 begin.
to build Nord Construction on
Nord Stream 1
Stream 2 NS2 is paused due
begins flowing
to US sanctions
2010 2022 2024
2014
Russia raises the price
of gas to Ukraine. Both 2nd March
parties start 2021 EU will unveil
arbitration Russian gas to plans to overhaul
Europe below its energy supply
2010 2019 levels chain
Russia and 2019 Jan-2020 Feb 24th
Ukraine sign 2014 EU Five-year European gas
a gas pricing Europe begins 2015 mediates a Ukraine prices reach Dec 2024
deal selling gas to Direct sales Ukraine transit €136/MWh2, Ukraine transit
Ukraine amid to Ukraine transit agreement up 61% from capacity booking of
conflict in eastern stop agreement starts Feb 23rd close 40bcm/a ends
Ukraine
Russian gas
Timeline is not exhaustive. 1) Royal Dutch Shell, E.ON, OMV, Wintershall and Engie 2) TTF front-month
Sources: Aurora Energy Research, EIKON 13Nord Stream 2 suspension and Ukraine war
The Nord Stream 2 pipeline is halted indefinitely and western
countries have imposed sanctions on Russia
Decision Background
Certification of the Nord Stream 2 ▪ On 22 February, the German Economy Minister, Robert Habeck, issued a statement that the
pipeline was halted by Germany on certification of the Nord Stream 2 pipeline would be suspended
February 22, 2022 ▪ The previous German government‘s security of supply assessment, which ruled that NS2 posed no
risk to German and EU security of supply, was withdrawn. Habeck noted that the geopolitical
situation requires the government to revisit the Nord Stream 2 project
▪ The security of supply assessment is a prerequisite for certification
US, UK, and EU sanctions ▪ The US imposed sanctions on Nord Stream 2’s owner and proposed Gazprom subsidiary operator
This is on top of sanctions placed on companies constructing the pipeline in 2020-2021
▪ The US, UK and EU imposed further sanctions on Russian individuals and companies, including
financial entities
▪ Additional sanctions are still under consideration
What‘s next?
▪ The future of the pipeline, whether and when gas would flow is now uncertain
▪ The owner company completed technical preparations in December 2021, indicating that physical operation would be possible as soon
as certification is approved
▪ The EU Gas Directive still means Gazprom will not use the pipeline’s total capacity unless it meets certain conditions. The Directive
requires that pipelines that connect the EU with non-EU countries are still required to abide by EU law when it comes to granting
third-party access to capacity and unbundling of supplier and network operator
Source: Aurora Energy Research 14Impact on gas and power prices
Gas and power prices reacted to news of the Nord Stream 2
suspension, military incursions into Ukraine, and Western sanctions
Dutch TTF forward prices1 react to conflict escalation German baseload power futures2 reflect the jump in gas prices
% %
60% Gas prices for the front year jump 60%
51.1% sharply day-on-day as Russian 49.5% Power prices at the
50% military incursion starts on 24th Feb 50% front of the curve
move with gas prices
40% 40%
Changes further along the
30% curve are more muted, but 30%
still significant Further future power prices
20% 20% moved less so than gas prices
10% 10%
0% 0%
-10% -10%
-20% Prices fall again on 25th Feb as the -20%
US makes statement on avoiding
-30% -30%
-29.7% sanctioning Russia’s energy sector -28.7%
-40% -40%
Mar- Sep- Mar- Sep- Mar- Sep- Mar- Sep- Mar- Sep- Mar- Sep- Mar- Sep- Mar- Sep- Mar- Sep- Mar- Sep-
22 22 23 23 24 24 25 25 26 26 22 22 23 23 24 24 25 25 26 26
Price change on 23 Feb from previous trading day Price change on 25 Feb from previous trading day
Price change on 24 Feb from previous trading day
1) CME TTF futures settlements 2) EEX German baseload power futures
Sources: CME, EEX 15Impact on gas and power prices
European governments had already responded to high energy prices
in 2021 with a mix of tax reductions, subsidies and price controls
Selected government measures to tackle high wholesale and retail energy prices Since 2021, many governments in
Europe introduced energy
Gas prices frozen for subsidies. Further rises in
Plans to abolish EEG some end consumers for wholesale prices will put more
levy by 1st July 2022, six the rest of 2022 and pressure on public budgets
months earlier than 2023
planned
▪ Countries across Western,
Southern, and Eastern Europe
Iceland
have enacted measures to
In H2-22, loan to Finland reduce the impact of high
Norway
suppliers for wholesale energy prices on
£200/household rebate
Sweden
Estonia From Oct-21, energy bill households and industry
on energy bill subsidy for households
Latvia ▪ Some of these were enacted in
and for businesses
Lithuania 2021, in response to rising gas
Ireland Belarus and power prices
UK Netherlands Poland
Germany ▪ Wholesale prices are rising
Belgium
Czech Republic Ukraine again in 2022 (see previous
Slovakia
Austria
slide), extending or even
France Hungary Moldova
Switzerland
Slovenia Romania
increasing these subsidies will
Until April-22, Croatia
become costly to public budgets
electricity taxes are Bosnia & Serbia
Herzegovina
reduced. Expected to be Italy Montenegro
Kosovo Bulgaria
extended if prices Albania
Macedonia
remain high Spain
Portugal Greece Turkey
Source: Aurora Energy Research 16Agenda
I. European reliance on Russian gas and coal
II. Nord Stream 2 suspension and Ukraine war, and impact on gas and power prices
III. Russian gas transport medium-term scenarios
1. Suspension until 2025 of Nord Stream 2
2. NS2 Suspension combined with disruption to Ukraine transit flows
3. Full cancellation of Nord Stream 2
IV. Potential for congestion in Europe and shortages
V. Takeaways
17Russian gas transport medium-term scenarios
We examine the impact of a delay to the Nord Stream 2
pipeline only, combined with continued Ukraine gas transit
Nord Stream 2 comes online in 2025, and transit In this scenario, we assume there is a de-escalation of war between Russia and
Scenario 1 NS2 delay only
through Ukraine does not exceed 40bcm/a Ukraine, and only a two-year delay to NS2
Historical flows 2019-21, constrained capacity 2022-30 This scenario is most similar to a return to the situation before the Russian
bcm/a military incursion into Ukraine. This is the most optimistic of the three scenarios.
Historical Maximum east-to-west capacity Here, we assume:
200
▪ There is some form of agreement made between Russia, Germany and the US,
which allows Nord Stream 2 to come online and start sending gas by 2025, a
two-year delay compared to Aurora’s previous Central scenario1
150 ▪ Russia continues to transit gas through Ukraine, albeit not exceeding 40bcm/a.
This is the level of long-term transit capacity booked by Russia for the years
2021-24. While it is technically possible for flows to be higher, we assume that
there is no incentive for Russia to use more capacity via Ukraine due to
100 alternatives available via Poland, and from 2025, Nord Stream 2
▪ There is the possibility that Russia instates a favourable regime in Ukraine
which leads to higher flows via Ukraine in the short-term. In the long-term,
50 Russian gas production in the NPT region, which feeds the Ukraine pipeline, is
in decline
▪ Nord Stream 1 flows are capped below maximum technical capacity once Nord
Stream 2 starts up2
0
2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
Nord Stream 2 TurkStream Nord Stream 1
Ukraine transit Yamal-Europe
1) As published on 4 May 2021 on EOS 2) Nord Stream 1 flows are reduced below capacity of 55bcm/a from 2025 because of regulatory restrictions along its downstream Opal pipeline connection
Source: Aurora Energy Research 18Russian gas transport medium-term scenarios
We then examine the impact of a halt to Ukraine gas transit
combined with a delay to the Nord Stream 2 pipeline
Nord Stream 2 comes online in 20251 but In this scenario, we assume that Russian gas to Europe is constrained
Scenario 2 No Ukraine transit
transit through Ukraine ceases during 2022 significantly until 2025 because of a complete halt to Ukrainian transit
Historical flows 2019-21, constrained capacity 2022-30 Russian supply into Europe is heavily constrained for 2022-24, due to a stop in
bcm/a flows via Ukraine and a delay to Nord Stream 2 until 2025
Historical Maximum east-to-west capacity Here, we assume:
200
▪ Ukraine flows cease during 2022, and do not resume for at least the next
Ukraine transit falls decade. Russia has booked 40bcm/a of capacity until 2024, but will either not
to zero in 2022 be able to use the route, or decide not to use the route. This will be the result
150 of a physical disruption, or political decision. No capacity is yet booked for the
years after 2024
▪ Nord Stream 1, TurkStream, and the Yamal route can be fully utilised, although
Nord Stream 1 flows are capped below maximum technical capacity once Nord
100 Stream 2 starts up1
▪ This scenario leads to a significant reduction in how much Russian gas can
arrive in Europe between 2022 and 2024 inclusive
50
0
2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
Nord Stream 2 TurkStream Nord Stream 1
Ukraine transit Yamal-Europe
1) Nord Stream 1 flows are reduced below capacity of 55bcm/a from 2025 because of regulatory restrictions along its downstream Opal pipeline connection.
Source: Aurora Energy Research 19Russian gas transport medium-term scenarios
Lastly, we examine the full cancellation of the Nord Stream 2
pipeline, with other routes remaining available for use
Nord Stream 2 is cancelled but other routes In this scenario, Nord Stream 2 is cancelled which means a return to the 2022
Scenario 3 NS2 cancelled
continue status quo, with Ukrainian transit capacity unaffected
Historical flows 2019-21, constrained capacity 2022-30 In this scenario, the Nord Stream 2 pipeline does not deliver gas for at least the
bcm/a next decade either due to long-term suspension or cancellation. This means
Russian gas capacity to Europe does not increase beyond today’s levels during
Historical Maximum east-to-west capacity
200 the 2020s.
▪ There is precedence for the cancellation of a large Russian pipeline, when
Gazprom abandoned the 63bcm/a South Stream project in 2014 due to EU
action taken following Russia’s annexation of Crimea
150
− The project would have delivered Russian gas directly to Bulgaria
− Construction had started earlier in 2014, but was not as advanced as
Nord Stream 2
100 Here, we assume:
▪ Cross-party outrage in Germany is sufficient to stop the Nord Stream 2
pipeline from coming online indefinitely
50 ▪ The cancellation of Nord Stream 2 is tempered by continued flows via Ukraine,
although still capped at 40bcm/a
▪ Nord Stream 11, TurkStream and Yamal have no constraints, and can be used
0 by Russia if economic
2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
Ukraine transit Yamal-Europe
TurkStream Nord Stream 1
1) Nord Stream 1 capacity of 55bcm/a is fully available, as it can also make use of the Eugal pipeline in this scenario, which would otherwise recieve all of Nord Stream 2‘s gas flows if the pipeline starts up
Source: Aurora Energy Research 20Russian gas transport medium-term scenarios
A halt in Ukrainian transit would keep Russian flows below 2020 and
2021 levels, as well as estimated contractual take in 2022
Russian gas deliveries1 would not fit into Nord Stream 1 and Yamal2 alone Historical gas flows are higher
bcm than capacity without Ukraine
▪ Aurora estimates that European
260
countries have 137bcm/a in
240 TurkStream starts total of pipeline supply
220 operations in 2020, contracts with Russia for 2022
with downstream ▪ In Scenario 1, a delay to Nord
200
expansions to follow Stream 2 will still result in
180 171 172 173
enough capacity to meet 2021’s
160 153 Russian gas flows and
143 137
140 133 131 contracted supply
120 − This would still keep gas
flows lower than in 2016-19
100
− But Gazprom could still send
80 about 5.5bcm/a more
60 through Ukraine, in addition
to its 40bcm/a long-term
40 bookings
20
▪ In Scenario 2, losing the Ukraine
0 route means capacity would be
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 below the estimated contract
level by over 27bcm in 2022
▪ Nord Stream 1 is already used
at available3 capacity
Total Russian gas flows to Europe Nord Stream 1 + Yamal + TurkStream + Ukraine at max4 Scenario 2 No Ukraine transit
Contracts Scenario 1 NS2 delay only Scenario 3 NS2 cancelled
1) Excluding Turkey and the Baltic States. 2) Capacity at Polish-Belarussian border used. 3) Downstream regulatory restrictions would keep combined NS1 and NS2 flows below capacity. 4)
Ukraine max capacity based on transit capacity provided by Ukrainian network operator TSOUA, which is partially mothballed.
Source: Aurora Energy Research 21Russian gas transport medium-term scenarios
With a two-year delay to NS2 to 2025, LNG deliveries to Europe
reach 110bcm by 2024, but fall the next year as Russian supply rises
Scenario 1 NS2 delay only LNG compensates for the two-
year delay to Nord Stream 2
European gas balance
bcm ▪ LNG receipts step up in each
Russian gas imports
scenario from 2022
Low demand in 2020, and weak remain subdued during
700 2022-2024 at 2020 − This could result in maximum
storage injections in 2021 pare LNG returns to pre-2022 lows as use of regasification capacity
650 the call on LNG in 2020-21 pandemic levels
Nord Stream 2 starts up at times
600
− Annual demand for LNG
550 523 would still fall well below
497 499 485
500 467 464 467 461 import and regasification
110 451 442 436 438
450 86 76 67 capacity, north west Europe
90 51 44 42 has about 127bcm/a of
400 82 39 37 36
103 105 77 81 78 sendout capacity alone
350 100 110 74 75 85
96 86 ▪ The increase is short-lived in
300 32 32 30 31 30
25 40 47 27
26 39 40 this scenario, as Russian supply
250 113 111 109 107 jumps to 183bcm/a in 2025-30
107 105 105
200 107 113 118 117 115 from 144bcm/a in 2020-24
150 once Nord Stream 2 is online
100 178 186 184 184 183 181 177 ▪ Indigenous production
148 137 144 145 145 continues to decline through the
50
period, and falls by 16bcm in
0
2025 year-on-year with Nord
-50 Stream 2’s startup
2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
Caspian LNG North Africa Russia1
Indigenous Production (Norway excluded) Non-EU Balkans Norway
1) Excluding Turkey and Baltics
Source: Aurora Energy Research 22Russian gas transport medium-term scenarios
A complete loss in Ukrainian transit boosts LNG imports throughout
the period, with a peak of 128bcm in 2024 before NS2 starts up
Scenario 2 No Ukraine transit Total Russian gas is down ~20%
compared to the first scenario
European gas balance Compared to Scenario 1, no
bcm Ukraine transit means total ▪ LNG sendout increases yearly
Small reduction in
Russian gas is down ~20% The introduction of NS2 increases before and reach up to 128bcm
LNG receipts and North gas demand vs
between 2022 and 2024 Russian flows by 40% year-on-year in 2024
700 Africa piped imports Scenario 1 via
in 2025. LNG and North Africa ▪ Piped imports from North Africa
650 pick up until 2024 fuel-switching
imports lose share in the balance are at 80% pipeline of capacity
600
between 2022-24 before
550 523 slowing down with the
497 495 485
500 467 464 467 461 introduction of NS2
110 451 442 436 438
450 88 78 67 ▪ Russian, Norwegian and
90 82 54 50 45
400 41 40 38 Caspian flows are at relatively
350 103 100 102 100 stable levels between 2022 and
96 86 117 125 128 99 100 105
2024 without much upside
300 25 33
26 39 33 33 32 31 30 available
250 53 54 54
107 113 ▪ Compared to scenarios 1 and 3,
200 107 111 109 107 105 105
113 there is a ~2bcm drop in gas
118 117 115
150 demand in 2023, driven by fuel-
100 178 switching economics
148 137 159 157 156 154 152 152
50 112 112 112 ▪ A drop in Russian gas means less
0 is exported from the west to
-50 Ukraine, risking a supply
2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 shortage. This is despite there
being enough west-to-east
Caspian LNG North Africa Russia1 pipeline capacity to fill its supply
Indigenous Production (Norway excluded) Non-EU Balkans Norway gap (see slide 30)
1) Excluding Turkey and Baltics
Source: Aurora Energy Research 23Russian gas transport medium-term scenarios
In a full Nord Stream 2 cancellation, Russian pipeline gas flows edge
down throughout the 2020s, as LNG receipts climb
Scenario 3 NS2 cancelled Without NS2 Russia’s share of
European supply falls to 30%
European gas balance
▪ Europe’s Russian gas receipts
bcm
remain steady at 2020’s low
LNG receipts remain Russian flows make near full
700 levels in the event of Nord
elevated relative to use of capacity, but edge
Stream 2’s cancellation
650 other scenarios lower by 2030, the share of
Russia drops to 30% ▪ Almost all available Russian
600
pipeline capacity is used,
550 523 including 40bcm/a via Ukraine
497 499 485
500 467 464 467 461
110 451 442 ▪ LNG receipts would remain
450 74 436 438
86 65 55 much stronger than in the
90 82 49 45 41 38
400 39 previous two scenarios later in
350 103 96 104 109 109 111 the 2020s. We expect this
96 86 109 109 112 117 would come at higher cost vs
300 25 39 45
26 39 39 33 34 34 33 Russian supply, and therefore
250 31 31
107 be bullish for European gas
200 107 113 118 117 115 113 111 109 107 105 105 prices compared to the NS delay
150 scenario
100 178 ▪ There is scope for Russian
148 137 148 149 149 148 147 146 144 141 139 pipeline flows through Ukraine
50
to rise, depending on Gazprom
0
and its Ukrainian counterparts’
-50 willingness to bring mothballed
2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 infrastructure at their shared
border back online
Caspian LNG North Africa Russia1
Indigenous Production (Norway excluded) Non-EU Balkans Norway
1) Excluding Turkey and Baltics
Source: Aurora Energy Research 24Russian gas transport medium-term scenarios
Indigenous production in Europe has limited upside potential, but
there is a small, up to 5bcm/a, increase in Polish production
European gas production including Norway1 Europe’s domestic production is
bcm already close to maximum
240 ▪ There is little scope for
additional upward flexibility
220
across all three scenarios from
200 Europe’s largest producers,
including Norway, UK and the
180 Netherlands
160 ▪ What little flexibility remains
could come from smaller
140 suppliers, including Poland and
Romania
120
▪ That said, the cap on Dutch
100 production is regulatory-driven,
and could be lifted in the event
80 of a supply shortage or
5 5
4 4 unexpected political change
60 4 4
3 3 2 2
2 2 ▪ Norwegian production can also
40 1 1
0 be shifted from one year to the
20 next depending on technical
0
-1 needs and the prioritisation of
-2 gas versus oil extraction
0
2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
Scenario 1 NS2 delay only Scenario 2 No Ukraine transit Scenario 3 NS2 cancelled Change in Scenario 22 Change in Scenario 32
1) Countries include EU 27 and Norway 2) Compared with Scenario 1 which has just a Nord Stream 2 delay
Source: Aurora Energy Research 25Russian gas transport medium-term scenarios
LNG receipts climb in 2022-24 in each scenario, before plateauing or
dropping in the late 2020s
European LNG imports1 Europe’s LNG receipts step up, but
bcm plateau well below capacity
270 ▪ LNG sendout rises in 2022-24
from 2019-20 levels by
240
− 17.2bcm/a in NS2 delay only
210 − 35.7bcm/a in No Ukraine
LNG receipts jump under each scenario, but transit
180 few suppliers are able to respond to higher
− 15.4bcm/a in NS2 cancelled
demand, and therefore European imports
150 remain well below capacity ▪ But this leaves European
regasification capacity still
120
underutilised, with average
90 unused capacity in 2022-30 of
− 142bcm/a in NS2 delay only
60
35 37 − 121bcm/a in No Ukraine
33 30 31 32
30 20 23 21 22 25 25 20 transit and in NS2 cancelled
17 18
▪ We see a potential bottleneck in
0 LNG export capacity in the USA
-4 -1 -1
and Qatar, where capacity
-30
2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 growth is not fast enough to
enable Europe to use more of its
Regasification capacity 47% 49% 49% 34% 35% 33% 31% 31% 35%
regasification capacity
utilisation rate 56% 58% 57% 44% 44% 42% 42% 42% 43%
▪ With stronger European LNG
50% 40% 37% 46% 48% 48% 48% 48% 46% 46% 47% 48%
demand, we expect competition
Scenario 1 NS2 delay only Scenario 3 NS2 cancelled Change in Scenario 22
for upstream LNG supply to
become the bottleneck
Scenario 2 No Ukraine transit Total re-gasification capacity Change in Scenario 32
1) Countries include EU 27 2) Compared with Scenario 1 which has just a Nord Stream 2 delay
Source: Aurora Energy Research 26Russian gas transport medium-term scenarios
In all scenarios, imports from North Africa remain below pipeline
capacity and fall gradually after 2025
European pipeline imports from North Africa1,2 North African supply responds to
bcm low Russian flows in 2022-24
70 ▪ Suspension of NS2 leads to
65 North African imports
increasing through 2024
60
55 ▪ Once NS2 comes online in 2025
in Scenarios 1 and 2, North
50 African flows drop again as they
45 are replaced by increased
Russian gas
40
▪ However, even in the scenario
35
where NS2 is cancelled,
30 elevated LNG receipts take the
25 place of African imports,
meaning that imports are fairly
20 similar across all scenarios after
15 13.4 13.6 2025
10 6.6 ▪ All scenarios assume a restart to
5 2.3 3.5 2.9 4.0 the 12bcm/a Magreb-Europe
0.5 1.0 1.0 2.1 1.0 1.5 1.6 1.3 pipeline
0
-0.8 − Flows halted Nov-2021 after
-5 -2.1 -1.6 the transit contract expired
2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 − A political dispute between
Algeria and Morocco has
Scenario 1 NS2 delay only Scenario 3 NS2 cancelled Change in Scenario 23
blocked a new agreement
Scenario 2 No Ukraine transit Total Africa import capacity Change in Scenario 33
needed to restart the line
1) Countries include Italy and Spain 2) Capacity includes Libya to Italy (Green Stream), Algeria to Italy via Tunisia (Transmed), Algeria to Spain (Medgaz), and Algeria to Spain via Morocco
(Magreb-Europe) 3) Compared with Scenario 1 which has just a Nord Stream 2 delay
Source: Aurora Energy Research 27Russian gas transport medium-term scenarios
Should Russian pipeline supply stop completely, there would not be
enough LNG regasification and downstream capacity to offset it
Difference between Russian pipeline gas flows to Europe1 and unused LNG capacity Without any piped Russian
bcm imports, other sources besides
LNG would need to step up
80 Russian gas imports
75 were 76.5bcm higher in ▪ There is not enough capacity for
2019 than Europe’s Russian imports would slow in 2025-30 in each additional LNG regasification to
70
entire unused LNG scenario, and European LNG regasification replace all of Europe’s Russian
65 regasification capacity capacity climbs, increasing Europe’s ability to pipeline imports alone
60 replace Russian gas with LNG
▪ Downstream capacity from LNG
55 terminals to demand centres
50 would cut the amount of LNG
45 -10% accessible to most of Europe
40 ▪ Iberia alone accounts for about
-14% 73bcm/a of Europe’s LNG
35
30 regasification capacity (34.7% in
-14%
2022 and 30.2% in 2030)
25
▪ In addition, pipeline
20
infrastructure within Europe is
15 insufficient to get gas from LNG
10 imports terminals to
5 everywhere it is needed
elsewhere in Europe
0
2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 − For example, border capacity
Difference between Russian flows and unused LNG capacity in Scenario 1 NS2 delay only to France from Spain is only
Difference between Russian flows and unused LNG capacity in Scenario 2 No Ukraine transit 7.74bcm/a
Difference between Russian flows and unused LNG capacity in Scenario 3 NS2 cancelled
1) Excluding Turkey and Baltics
Source: Aurora Energy Research 28Agenda
I. European reliance on Russian gas and coal
II. Nord Stream 2 suspension and Ukraine war, and impact on gas and power prices
III. Russian gas transport medium-term scenarios
1. Suspension until 2025 of Nord Stream 2
2. NS2 Suspension combined with disruption to Ukraine transit flows
3. Full cancellation of Nord Stream 2
IV. Potential for congestion in Europe and shortages
V. Takeaways
29Potential for congestion in Europe and shortages
Even without Ukraine transit, there is sufficient pipeline capacity for
Ukraine to import gas from the west to avoid a supply deficit …
Ukrainian gas imports and capacity A halt to Russian transit reduces
bcm Ukraine’s access to gas
▪ Ukraine has relied entirely on
36
33.1 domestic production and
Conflict in eastern Ukraine cuts European imports since 2015
32
gas demand and imports sharply,
28.3 Ukrainian import needs were ▪ Most gas arrives at the Slovak
and forces Ukraine to reconsider
28 very low because of unusually and Hungarian borders
reliance on Russian gas imports
high underground inventories ▪ But most gas sold to Ukraine
24
from Hungary and Poland is
19.5 physical offtake of Russian
20
supply
15.9 15.9
16 14.1 14.2 ▪ Some import capacity is reliant
on forward transit flows to
12 11.1 10.6 enable backhaul to Ukraine
▪ Guaranteed physical import
8
capacity is still 9.86bcm/a from
Slovakia and 2.9bcm/a from
4 2.6 Hungary, but imports can reach
15.3bcm/a from Slovakia
0
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 ▪ Ukraine is not likely to need
imports above the combined
18.2bcm/a in any given year
− Gas demand is likely to fall in
Poland Slovakia Ukraine firm import capacity the short-term regardless
Hungary Russia Ukraine firm import capacity (high level) following military action
1) Firm (guaranteed) Slovak capacity was increased to 15.3bcm/a until the end of Mar-22 2) Firm Hungarian capacity was made available from Jan-22
Sources: Aurora Energy Research, Gas Transmission System Operator of Ukraine 30Potential for congestion in Europe and shortages
… however, in order to offset a halt to Ukrainian transit, west-to-east
flows within the European network would need to increase…
Eastward gas flows at key European network points were well below combined capacity Pipeline flows have been far
mcm/d below west-to-east capacity
▪ This leaves Europe with ample
220 Infrastructure expansion was capacity to send gas eastwards
200 originally intended to align to countries that are typically
with Nord Stream 2 start supplied through Ukraine
180
160 − This includes Italy, Austria,
Slovakia, and Ukraine
140
− Gazprom uses TurkStream to
120 feed most southeast
100 European markets
80 ▪ Russian gas delivered to
northwest Europe through the
60
NS1, NS2 (if available), and
40 Yamal pipelines would have to
20 travel east to replace gas sent to
the Ukrainian border if
0 Ukrainian transit halts
-20
▪ Sending LNG to Germany and
-40 eastwards from Spain and
Jan- Jan- Jan- Jan- Jan- Jan- Jan- Jan- France is much more difficult
15 16 17 18 19 20 21 22 due to limited pipeline capacity
between LNG terminals and
central and eastern European
markets
Switzerland1 Austria2 Czech Republic3 Total technical capacity
1) Switzerland to Italy (Passo Gries) 2) Germany to Austria (Oberkappel) 3) Lanzhot (Czech Republic to Slovakia)
Source: Aurora Energy Research 31Potential for congestion in Europe and shortages
… and redirecting historical Russian gas flows eastwards through the
European network could cause congestion
Gas transit through Ukraine to the Slovak border vs unused1 west-to-east capacity ▪ In the case that Ukraine transit
mcm/d halts (Scenario 2)
− Redirecting gas that had
220 Ukrainian transit bookings fall previously transited Ukraine
and TurkStream starts up through northwest Europe
200
instead could create
180 congestion
160 ▪ There is enough west-to-east
Up to 220mcm/d can capacity in the European
140 flow here if needed, but network to send Russian gas
Gazprom can only send arriving in Germany eastwards
120
125mcm/d into Ukraine instead of through Ukraine
100 − But this depends on total
80 demand for Russian imports
on any given day
60 − This capacity could fill during
40 periods of high demand,
increasing the cost of sending
20 gas to affected markets
0 ▪ Current pipeline bookings
Jan- May- Sep- Jan- May- Sep- Jan- May- Sep- Jan- May- Sep- Jan- May- Sep- Jan- May- Sep- Jan- May- Sep- suggest Ukraine transit flows
17 17 17 18 18 18 19 19 19 20 20 20 21 21 21 22 22 22 23 23 23 will be similar to unused Czech-
Slovak west-to-east capacity
Unused west-to-east capacity at other key borders2 Russian gas deliveries at the Ukraine-Slovak border
Unused west-to-east capacity at the Czech-Slovak border3 Russian capacity bookings at the Ukraine-Slovak border
1) Spare capacity = technical capacity minus net physical eastward gas flows 2) Other capacity at Oberkappel (Austria) and Passo Gries (Italy) 3) Czech-Slovak capacity at Lanzhot
Source: Aurora Energy Research 32Agenda
I. European reliance on Russian gas and coal
II. Nord Stream 2 suspension and Ukraine war, and impact on gas and power prices
III. Russian gas transport medium-term scenarios
1. Suspension until 2025 of Nord Stream 2
2. NS2 Suspension combined with disruption to Ukraine transit flows
3. Full cancellation of Nord Stream 2
IV. Potential for congestion in Europe and shortages
V. Takeaways
33Takeaways
We explored several Russian gas scenarios and their impact on
European markets
Russian gas is key for European supply, making up Less Russian gas into Europe can be offset by both
~40% of the total in Europe, but over 75% in some more LNG, and higher imports from Africa, but we
countries in the east and south. Tensions in Ukraine, presume this will come at a higher cost than Russian
and the suspension of Nord Stream 3 certification gas. In Europe, LNG imports remain well below
saw gas and power prices rise sharply capacity, as we expect competition for limited
upstream LNG supply to become the bottleneck
1 In our optimistic scenario with only a delay to NS2
until 2025, LNG imports reach closer to maximum
regasification capacity, but drop again once NS2 is Supply shortages in Ukraine are a risk especially in a
online. Overall, there is enough gas in Europe scenario where there is no gas transit via the country,
as there is less Russian gas available in Europe that
can be shipped from west to east. This is despite there
2 Should Ukraine gas transit stop from 2022, and NS2 being sufficient pipeline capacity
be delayed to 2025, Europe could compensate with a
strong pick up in LNG and imports from Africa, but
there may be insufficient western supply to Ukraine A disruption to Russian gas supply or capacity into
Europe is expected to be bullish for European
markets due to the high share of Russian gas in the
3 In a scenario where NS2 is cancelled, Europe imports supply mix. There may be enough nominal LNG
less Russian gas and more LNG and piped gas from import and pipeline capacity into Europe, but there
Africa over the next decade, but we expect this will are bottlenecks within Europe
come at a higher cost
Source: Aurora Energy Research CONFIDENTIAL 34About Aurora
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Source: Aurora Energy Research 35About Aurora
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Source: Aurora Energy Research 36Disclaimer and Copyright
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