The United States, the world's top natural gas producer, has asked Qatar, and other major energy producers to divert gas supplies to Europe if Moscow attacks and Washington imposes sanctions that would disrupt Russian flows.
Russia, which supplies around a third of Europe's gas, has amassed some 120,000 troops near its neighbor but denies plans to invade Ukraine.
Any Russian invasion into Ukraine would almost surely trigger economic sanctions from the U.S. and its European allies. That could lead to oil and gas shortages around the world and, most likely, higher energy prices that could send tremors through the global economy.
Europe's natural gas supplies from Russia are mostly delivered through pipelines and since October last year have been well below seasonal levels.
Flows in 2021 through Russia's three main pipelines to Europe totaled 37,409 gigawatt hours/day (GWh/d) Refinitiv Eikon data showed, down from 41,263 GWh/d in 2020 and 49,431 GWh/d in 2019.
European storage stocks are around 19 billion cubic meters (bcm) below their five-year seasonal average, according to Platts Analytics, despite other sources of supply being close to maximized over recent months.
Platts Analytics expects that European stocks will be near record lows at the end of winter even if Russian flows continue, leaving little scope to absorb a further supply shock.
European liquefied natural gas (LNG) imports hit a record high in January at 11.8 bcm, compared with a previous record in November 2019 of around 9 bcm. Nearly 45% of the LNG imports were from the U.S.
Qatar, a top LNG producer, is eager to help but might only be able to offer limited assistance as it has little spare supply as most of its output is locked in long-term contracts.
Qatar's nameplate LNG export capacity is 106 bcm. However, Luke Cottell at S&P Global Platts expects to rise to only 107 bcm, capping Qatari exports.
It could produce more by deferring second-quarter maintenance, but its Asian contracts still limit its supply to Europe.
Traders estimate Qatar's output breaks down into 90%-95% long-term contracts and 5%-10% spot contracts.
Long-term, point-to-point contracts, such as those from Qatar to China or Japan, could be amended to release supplies for Europe, but any Asian customers who agree would want compensation.
Even if some Pacific allies of the U.S. — including India, Japan and South Korea — are persuaded to divert some LNG orders it has contracted to Europe, it will only have a small impact in softening the blow, according to energy analysts.
Industry sources and analysts expect Qatar to divert only 8%-10% of its LNG to Europe, and even this will take time as it takes longer to ship LNG from Qatar to Europe than to Asia.
Suppliers in Australia — the world’s biggest LNG supplier — as well as Italy, the Netherlands, Norway and the U.S are among those that Joe Biden administration officials have looked to assist if needed.
Qatar plans to grow its LNG output by 40% with its North Field expansion project, but it will not produce until 2026.
Qatar is asking the European Union to restrict resales of gas outside the continent to stop traders reselling at a profit if it wants Qatar and other major gas suppliers to provide emergency supplies.
The Gulf state reportedly says it is also necessary to resolve a long-running EU probe into Qatar’s long-term gas contracts, for the EU to be less dependent on spot sales and more on long-term contracts to boost its energy security.
The EU sees free trade of gas as essential to energy security but major producers and some gas consumers say the reforms of the last two decades have led to complexity and higher prices.
Some traders also re-route Qatari gas to Asia for profit.
"Since the price rally in Europe, Italy appears to have diverted several Qatari cargoes to higher-priced markets, with fourth-quarter imports from Qatar down by seven cargoes from 2020," Felix Booth, head of LNG at energy intelligence firm Vortexa, said.
Industry sources said Doha would not be able to control the final destination in return for delivering excess supply because once gas reaches Europe, any previous restrictions on its destination are not enforceable and owners can reload it onto new LNG carriers.
Morten Frisch, the senior partner at Morten Frisch Consulting, said regulations in Britain and most EU countries do not prohibit the reloading of LNG cargoes to countries outside Europe.
The European Commission said on Monday it would not comment on the details of discussions with international partners on gas supplies.
Steady flows of LNG to Europe have already pushed up utilization of 30-day average regasification capacity – that converts super-chilled LNG back to natural gas – to 75% from 51% in early January in Western and Southern Europe, Rystad Energy said.
This means Europe has limited regasification and storage capacity to absorb further flows of LNG.
