A tight LNG market will only get tighter should tensions between Russia and Ukraine boil over with Europe potentially looking at a gas crisis.
With Russian troops massing at the Ukrainian border and many expecting an invasion, Evercore analyst Sean Morgan said should Russia strike, the US and its allies would likely counter with sanctions on Russian gas exports.
The sanctions would hit a market with little gas available to export and send the European Union looking for a new source for more than 40% of its LNG and depleted reserves.
“The ugly reality is that a contained conflict between Russia and Ukraine would probably benefit US LNG exporters,” Morgan wrote.
“The US has a strong alliance of NATO and other global security partners, which constitute conservatively more than 50% of all LNG imports globally. If Russia invades Ukraine it is likely that economic embargoes, aimed at Russia, would be followed by Western European (NATO) and other US security partners driving up the cost of gas in Europe and landed LNG in Asia.”
He said the conflict is as much political as it is economic, with Russia reticent to pay lucrative natural gas pipeline transit fees to Ukraine as the country grows closer to the US and Europe.
Russia has spent billions to build other pipelines to access the European market and bypass Ukraine and Poland, like the TurkStream pipeline running through Turkey and the Nord Stream 2 project under the Baltic Sea.
But Russia’s reticence to pay the Ukrainian and Polish governments means Russian exports to Europe have slowed down, too, Morgan said.
Should sanctions and embargoes be implemented they would hit a market already seeing competition between Europe and Asia over the limited export cargoes available from the US, Australia and Qatar.
In December, the tight market caused Netherlands TTF prices to spike to nearly $60 per metric million British thermal units.
The price remains higher than the Asian JKM benchmark, while US prices tick up.
“Putting it more bluntly, the US cannot save Europe from a gas crisis with increased LNG exports if there is a sudden halt to the massive Russian pipeline volumes that support Europe’s gas consumption,” he said.
For the US, sanctions seem unlikely until Russia takes some sort of military action against Ukraine.
Earlier this week, US secretary of state Anthony Blinken said sanctions were a deterrent.
“Once sanctions are triggered, you lose the deterrent effect,” he said on CBS Sunday morning talk show Face the Nation.
