Suggesting that the precariously balanced global economy could be at risk of energy supplies being lost, the research indicates that Europe’s push for more LNG has caused spot prices to reach record levels.
Stating that it is ‘inconceivable’ that Europe will return to any meaningful dependence on Russia, Massimo Di-Odoardo, Vice President of Gas and LNG Research, Wood Mckenzie, revealed that a new trade balance may be beginning to take shape.
“While prices will be structurally higher and a ban on Russian gas will be more challenging than that of other commodities, the ‘west’ can live without Russian commodity exports,” he added.
“Increasing domestic coal production in China and India will compensate lower seaborne availability, while perhaps the biggest risk to Russian oil production is in the long term and relates to the loss of access to western partners, technologies, and services.”
The research revealed that competition between Europe and Asia could be set to intensify if a ban on Russian gas is sustained.
According to Shell LNG Outlook 2022, China has become the world’s largest LNG importer with LNG imports reaching 79m tonnes in 2021.
Due to an LNG supply-demand gap expected to emerge in the middle of the current decade, Asia is set to lead growth in LNG demand through to 2040.
Having been reliant on Russian natural gas for around 40% of its supply, Europe’s demand is rapidly increasing.
“A huge increase in LNG project investment is being supported by a rapid increase in European LNG demand, with US developers already looking to the fill the space,” said Di-Odoardo.
Investments could be delayed by rising cost in energy supply, increasing pressure on an already heavily disrupted global supply chain.
With the global supply chain issue causing renewable costs to increase, there is a risk that the energy transition may begin to get more expensive, in addition to becoming more carbon intensive.
Despite this, the analysis revealed that, due to a forecasted slowdown in economic growth and a focus on low carbon investments, CO2 emissions are set to reduce by up to 15% by 2035.
Wood Mackenzie’s latest report discusses the role that could be played by governments, investors, and companies to meet future demands, increase energy security, and explore areas of growth.