KEY MESSAGES
- Phasing out Russian gas is technically and physically feasible even during major global supply shocks, as missing volumes can be successfully replaced through a combination of storage withdrawals and alternative LNG imports.
- Maintaining Russian gas supplies has nearly no measurable effect on costs (1-3%) in most crisis scenarios. So there is no economic or technical necessity to postpone the phaseout.
- Europe’s primary energy vulnerability has shifted from a dependence on Russian pipeline gas to a heavy reliance on US LNG, which in some scenarios results in a market share similar to Russia's levels prior to the 2022 invasion of Ukraine.
- A 3-months drop of US LNG alone results in a 50% gas bill increase for European buyers. This risk points to the high dependence on US LNG and the potential weaponization of US supplies.
- The closure of the Strait of Hormuz could increase the EU’s gas bill by 48%, while a simultaneous 3-months loss of US LNG supply could drive that increase as high as 106%.
- The most effective response to neutralize severe price hikes is to reduce gas demand by 25% within the next 2 years.
METHODOLOGY
The study investigated the exposure of European gas markets to LNG market shocks by using scenario analysis based on gas market modelling (EGMM).
Key scenarios analysed are: Strait of Hormuz closed, US LNG supply disrupted (1 and 3-months), and a combined crisis of these two. We tested the implementation of the REPowerEU Roadmap implementation or postponement on these scenarios and tested how the impacts can be mitigated by demand reduction.
RESULTS
Modelling results show that the 20% drop in global LNG supply due to the Middle East crisis resulted in a 48% gas bill increase in Europe, despite the limited (10%) share of Qatari LNG in the EU supply mix. The price increase in the EU is evenly spread between the Member States, as the internal pipeline system is sufficient to adapt to the changing gas flows. No major pipeline bottlenecks were identified.
The US LNG is the main beneficiary of the crisis, as due to the contractual structure (spot and DES cargoes available and can be diverted to Europe) it is the most flexible available source on the market and the EU substitutes missing volumes with US LNG. The two major competitors to US LNG, Russian pipeline gas and Qatari LNG are unavailable under the current modelled circumstances.
With the Russian gas phaseout the US LNG has gained substantial share in the EU27 gas supply mix, therefore we investigated what a drop in US LNG supply would cause in the EU gas prices. We found that a 1-month dropout could be weathered with the help of European storages, and the US volumes purchased would only shift in time within the year adding 3% increase to the EU gas bill.
A 3-months drop of US LNG alone results in a 50% gas bill increase for European buyers. If the US LNG deliveries would stop to Europe for 3-months combined with a Strait of Hormuz crisis, then the gas bill of the EU27 would increase by 106% in 2026 and 83% in 2028. In this most severe scenario, the internal gas market would fragment into different price zones: the Iberian Peninsula (Spain and Portugal) and Central and Southern Europe especially the Balkans would face the highest price increase. This is due to the limited connections to the Northwestern markets and the limited storage capacity.
Russian gas phaseout plans do not have any major impact on the modelling results. If the EU postponed the Russian gas ban and still purchased the pipeline gas and LNG under the ongoing long-term contracts, the gas bill would be decreased by 1-3% in most scenarios. The reason for this is the fact that by 2025, share of Russian pipeline gas and LNG dropped to 12% and would not serve as a major alternative for missing volumes. Therefore, it is more a political choice of the EU weather to pay the high price for the US LNG or for the Russian import. Russian gas could substantially affect the European gas markets in the US 3-months supply outage scenarios combined with the Hormuz crisis. The Russian long-term contracts to Hungary and Slovakia as well as LNG flows to Western European LNG terminals can result in a 61% increase in gas bill compared to a 83% increase without Russian gas.
The high prices will certainly trigger demand response. This modelling exercise did not investigate how gas demand would be reduced, but based on the experiences of the previous crisis energy efficiency measures and switching to renewables (solar mainly) may be the most widespread options. The REPowerEU strategy plans with a sharp demand reduction, – that might seem to be too ambitious – but in case it is implemented the negative price impacts of the modelled supply shocks could be far outweighed. Our modelling suggests that this is possible even with a less ambitious goal: reducing the EU gas demand from 3608 TWh/yr in 2026 to 2672 TWh/yr by 2028 would offset the negative market effects caused by the Strait of Hormuz
crisis. We assume that this ~25% demand reduction in 2 years is comparable to the demand reduction that was achieved during the previous energy crisis on a market basis.
Furthermore, the supply gap can also be reduced by increased domestic gas extraction. From 2024 to 2025, EU gas production increased by 10% year-on-year, however it must be stressed that it is still delivered ~370 TWh/year.
