This is the most bearish scenario and also the most unlikely. A peace deal between Russia and Ukraine sees a partial resumption of pipeline gas to Europe, despite some opposition within Europe. We have assumed that there are only two additional viable routes for Russian pipeline gas into Europe.
Russian flows via Ukraine resume and these volumes could be as much as 40bcm, which is in line with volumes under Gazprom’s 2021-24 contract with Ukraine. Admittedly though these volumes were significantly less following the war.
The other route which will see a return of flows in this scenario is the Yamal-Europe pipeline. These flows came to a complete stop in 2022. The pipeline has a capacity of 33bcm and we assume it will be fully utilised. Given the pipeline has not been operational for some time, it may take time for a restart with the potential for maintenance work.
The above amounts to an additional 73bcm of annual supply coming into Europe, which is equivalent to around 22% of EU consumption in 2024. This would also take total Russian pipeline flows to around 88bcm per year, when taking into consideration the 15bcm of flows that the EU already receives via the Turkstream pipeline.
This also potentially leaves Russia as the largest supplier of gas (including LNG flows) to the EU once again. A factor which will likely raise a few eyebrows.
In this scenario, we assume there is no restart of pipeline flows via Nord Stream 1 and 2. Nord Stream 1, which has a capacity of 55bcm, was severely damaged in the 2022 sabotage attack, so this is unlikely to make a return anytime soon. Furthermore, Nord Stream 2, which has a similar capacity, was partially damaged in the sabotage attack. There are suggestions that one of its lines could potentially be used, allowing for as much as 27.5bcm of supply. But it is important to remember that the pipeline has never been in commercial operation and is also yet to be certified by the German government.
On top of the additional 73bcm of pipeline gas supply coming into Europe, the US also decides to lift sanctions on LNG projects, which finally sees the start-up of 9bcm of export capacity from Arctic 2.
The uncertainties around this scenario are what pipeline routes will be used and also the timing. A restart that only takes place in 2026 would obviously be of little help to the European market for the 2025/26 winter.
A realisation of this scenario drastically changes the outlook for the European natural gas market. European gas hub prices will trade at a wider discount to JKM, in order to ensure we see cargoes being diverted to Asia. Prices move significantly lower, possibly to levels where we may even start to see LNG cargo cancellations, with the global LNG surplus brought forward. These levels should be equivalent to the short run marginal cost for US LNG into Europe, which is currently around US$5.80/MMBtu (or a little over EUR18/MWh).