If gas flows from Russia to Europe are cut, there will be a major shortage of gas in European consumers, while Russia as a supplier would lose out on payments for these volumes, Robert Songer, LNG market analyst at commodities intelligence firm ICIS, told Report.
“If the scenario above happens, Europe will have no choice but to seek extra volumes in the form of LNG, as pipeline imports probably cannot be ramped up too much without further capacity upgrades which will take time,” he noted.
But global LNG supplies are very tight, with little new capacity coming on stream in the next few years, he added.
“So, Europe will almost certainly have to reduce demand for natural gas and LNG at the same time, whether by switching to alternative fuels or turning off gas-dependent plant altogether,” he said, noting that in the event that gas supplies to Europe are cut off, further price rises would seem inevitable.
As this is a very volatile political situation, it is obviously hard to predict accurately what the outcome of Russia’s obliging Western countries to pay for gas in rubles will be, Songer said.
“It is worth noting though that contracts are legally binding documents that cannot be unilaterally amended. When contracts are in dispute, intractable disagreements usually have to go to arbitration. This process often takes many years to reach a resolution,” he said.
He added that obviously it is possible that one side or other decides to suspend gas flows but neither side has yet demonstrated a desire to do this yet.