Page 16 - ISQ July 2022

INVESTMENT STRATEGY QUARTERLY

“ ... both sides need each other – but, all else being

equal, Russia needs Europe as a customer more
than Europe needs Russia as a supplier. ”

incentivising more LNG shipments from all of the major producers innovations. Starting in the second half of this decade, Europe
(US, Qatar, and Australia). That said, building new LNG projects will probably never need to buy natural gas from Russia again,
with European demand in mind requires signing multi-decade even if diplomatic relations with Moscow end up normalizing.
contracts, and there is less certainty about how demand will LNG imports will continue beyond 2030, partly for the sake of
evolve over such lengthy timeframes. For example, there is a flexibility (for example, in cases of extreme weather), and to
proposed EU regulation that aims to ban the signing of LNG support the continued phase-out of coal-fired power plants for
contracts beyond 2049, this being the year before the EU’s legally environmental reasons.
mandated target of net zero CO2 emissions.

As with oil, Europe cannot produce enough natural gas to meet all
its current needs, but reducing consumption is very realistic. KEY TAKEAWAYS:
Indeed, it is already happening; Europe stands out as the world’s • There is recognition that the European continent’s
only major economy that is currently consuming less natural gas long-standing dependence on Russian energy is no
than it did in 2010. In case you think that Europe has shifted from longer a viable option.
natural gas to (much dirtier) coal, that is emphatically not the • Approximately one-third of Europe’s oil consumption
case. In 2020 (the last full year of available data), natural gas (4.5 out of 13 million barrels per day) and also natural
comprised 22% of Europe’s electricity mix, with coal at 12%. By gas (15 out of 45 billion cubic feet per day) came from
comparison, the 2010 figures had been 23% and 25%, respectively. Russia; however, Russia needs Europe as a customer
If natural gas and coal are both shrinking, what is gaining share? more than Europe needs Russia as a supplier.
The answer is renewables: wind, solar, and smaller amounts of
biopower and geothermal. Combined with hydropower (which is • With natural gas, the transition from Russian supply
plateauing), all renewables combined are at 38%, which is almost will be both time consuming and logistically complex.
double the 2010 figure of 20%, and higher than in all other major • Europe reducing its consumption of natural gas is very
economies except Canada and Brazil. We forecast that Europe’s realistic. Europe stands out as the world’s only major
renewable penetration will increase to around 60% by 2030, economy that is currently consuming less natural gas
which matches the pace of growth from the 2010-2020 period. In than it did in 2010.
other words, this forecast does not require any game-changing

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