Atlantic LNG market participants weigh impacts if EU bans Russian LNG imports

The US decision March 8 to ban imports of Russian LNG raised concerns in the market that more of Europe would follow suit, upending trade flows in the Atlantic Basin.

Yamal cargoes would be stranded, buyers would be forced to declare they can't fulfill contracts, and delivered prices that have already soared into unchartered territory would rise further, traders said.

What was unthinkable just days earlier vaulted to a possibility after President Biden announced that the US would ban the import of LNG, oil, and coal produced in Russia due to its invasion of Ukraine. So far, only two European countries, the UK and Lithuania, have taken similar steps, although others have blocked imports of other commodities.

None has blocked the import of pipeline gas from Russia.

"It is all DES, so cargoes will arrive at ports and remain idle," an Atlantic-based trader said of what would happen if Europe, as a bloc, takes the same step as the US. "Buyers will declare force majeure, and they will have to stop production since the cargoes cannot go to Europe."

The trader added that Novatek and Gazprom would have to heavily discount their cargoes to lure some country outside of Europe to take them. "But it will be a struggle," the trader said.

The US is a major exporter of LNG, but is not a significant importer, having made the decision over a decade earlier to convert regasification facilities along the Gulf Coast to be able to liquefy gas instead after the shale revolution unlocked vast reserves of natural gas.

The US imported some 21.4 Bcf of LNG in 2021, all from Trinidad and Tobago, according to Department of Energy and S&P Global Commodity Insights supply chain data. The US hasn't imported any Russian LNG since 2019. That cargo reportedly went to Puerto Rico. A cargo that was unloaded in the Boston area in 2018 was first delivered to the UK. Records also show an import of Russian LNG in Texas in 2017. The vast majority of LNG that the US does import goes to the Northeast, where insufficient pipeline capacity creates demand for LNG during peak winter heating season.

"If EU bans Russian cargoes, the only chance will be to ship it to Asia and sell it to China with a big discount," said a second Atlantic-based trader. "EU can't apply the same as the US. They are highly dependent. The bills in the EU for gas are already unaffordable. They can't do it."

Naturgy has Yamal offtake that they can take to Spain, but if not, what would happen to those cargoes?

"India or China," said a third Atlantic-based LNG trader.

Voyage distance

A European-based broker questioned whether, due to the long voyage, it would be competitive to send those cargoes plus shipping to the Far East from Yamal.

"I guess it depends on shipping lanes," the broker said. "Depends on insurance and it also depends on if economics go out the window and the Chinese buy to support the Russians. Do the Russians cut the price of LNG? If there are no buyers and the long-term supply contracts aren't lifted, will we see Yamal shut-in for LNG cargoes?"

Other market participants agreed that it would have a significant market shock if the EU did it and that because of that there was a "halo" of potential security of supply concern, although nothing concrete yet as traders weren't hearing of cargoes fetching premiums to the European gas hub price. But while they were hesitant to consider the idea a week earlier, few are now.

"Trying to figure out what it means," a fourth Atlantic-based trader said. "Hilariously, it looks like Venezuela and US will become buddies again."