The loss of Russian gas supplies has led to a supply deficit in Europe which is likely to last over the coming three to four years and sustain higher gas prices. To avoid the long-term deindustrialization of Europe and the impoverishment of millions of citizens, Europe needs an energy security plan that looks beyond public support, energy savings and renewable electrification only.
We must work to secure alternative gas supplies, both in the form of long-term supply contracts, and by maximizing domestic gas production. With the right planning and execution, Europe’s gas market could rebalance as early as 2026 – but there is no time to waste.
Russia’s invasion of Ukraine brought to light numerous vulnerabilities in Europe’s energy system and triggered legitimate concerns about Europe’s long term energy security.
As European policymakers scrambled to design contingency plans, IOGP Europe teamed up with its US counterpart the American Petroleum Institute (API) and energy market analysts at Rystad Energy to look into three key questions:
- What are Europe’s supply options in case of a complete halt in Russian gas supplies in 2023?
- Will they be sufficient to replace all Russian gas imports?
- Would the European gas grid be able to handle new gas supply patterns?
The picture painted by data paints a mixed picture, in which there are bad news in the short term, but also good news in the long term.
Let’s start with the bad news.
A complete halt of Russian gas supplies as of 2023 would lead to a supply deficit until around 2026. This is due to insufficient affordable volumes of LNG on the global market to meet Europe’s planned demand. As Europe competes with Asia for these LNG volumes, prices increase to levels difficult to sustain for households and for the industrial sector, potentially leading to permanent deindustrialization in Europe.
But there are also reasons to remain hopeful.
The issue is not a lack of gas resources; the main challenge consists in building enough liquefaction terminals to export it around the globe and to Europe. This can happen from 2026 onwards if permitting procedures are accelerated in exporting countries, and long-term contracts are signed to underpin these export projects.
Contrary to popular belief, there are significant gas resources remaining in Europe at large. Their role (200 bcm per year until 2030, dropping to 100 bcm per year by 2040) will be higher than that of pipeline imports (50-60 bcm by 2040), and far from negligible compared to the future share of LNG imports in the gas supply mix.
For context, European climate neutrality plans would see gas demand drop from 500 to 250 bcm over the same period.
The challenge before Europe is two-fold: mitigating the impact of the supply crisis in the short term, while strengthening its strategic autonomy in the long term. This must be achieved while preserving both Europe’s industrial competitiveness and its climate commitments.
To overcome this complex equation, Europe needs to drop old habits and start simplifying its policy response. It’s time to stop picking and choosing between technologies: we need all the low carbon energy sources and technologies we can get – and fast.