US LNG Exports at Risk: Potential Unwinding of Sanctions on Russian Natural Gas

US LNG has been the key factor in replacing lost Russian pipeline supplies, with high European prices and shorter shipping distances from the US incentivizing a shift from Asia to Europe of US free-on-board (FOB) flexible destination contracted LNG. By contrast, other (non-US) LNG supplies to Europe have actually declined marginally for various reasons, which include marginally better netback economics for these volumes in Asia.

The US LNG supply response was critical as other sources of European gas supply had only limited upwards flexibility between 2021-2024. European domestic production is on a declining path due to the maturity of its asset base (e.g. UK). Looking to external pipeline imports, Norwegian production had already been maximized prior to the loss of Russian gas in 2022, while Azerbaijani exports were maximized to pipeline capacity and Algerian exports are inhibited by declining reserves and growing domestic demand.

During the period of the most acute gas supply shortfall, the US become Europe’s largest LNG provider accounting for 50% of total LNG imports, and ~15% of total European gas supply (Figure 2). Aside from covering a portion of the gap left by the reduced Russian gas, US LNG was able to replace Russia as the principal provider of flexibility to the market and became a main source for gas to refill European gas storage. At the same time, Europe has become the single most important destination for US LNG, account for 58% of all US cargoes delivered in 2022-2024 period (147 out of 252 MMt exported from US in total over this period).

Europe’s prior dependence on, and subsequent curtailment of, Russian pipeline supplies in 2022 saw a rebalancing of global gas and LNG markets with high prices ensuing. The precipitous decline in volumes of Russian pipeline gas and inability to secure more supply led to a spike in gas prices and to a sharp demand response in the European market. As a result, between 2021 and 2024 Europe’s gas consumption declined by 19% (Figure 3). Even as global gas and LNG markets rebalance, prices soften and European demand recovers, an estimated 1.5 bcf/d of demand in European industry is forecast to never return.

The EU as well as EU member states, most notably Germany, also introduced policy measures to curtail dependence on Russian gas. This included acceleration of investment in renewables, seasonal storage filling requirements and facilitation of investment in LNG regasification terminals. Europe added, and continues to add, significant LNG import regasification capacity since 2022, making it infrastructure-ready to import more LNG long-term.

Europe added significant regasification capacity to effectively replace Russian pipeline gas with LNG

Historically, Europe’s gas infrastructure has been heavily reliant on importing pipeline natural gas from the East via three key routes: Yamal-Europe (Poland), the Ukrainian gas transit system, and the Nord Stream 1 pipeline (Germany). Nord Stream 2 was completed in 2021 but never put into operation. By the end of 2022, Europe faced a significant reduction of 80% in Russian gas supplies compared to 2021, leaving the gas markets, particularly Germany, highly vulnerable. At that time, Germany had no LNG regasification facilities in operation.

Prior to 2022, while Europe had substantial spare regasification capacity in Spain and the UK, the interconnection of this capacity was insufficient to compensate for the loss of Russian pipeline gas in major gas-consuming markets, including Germany, Italy, and Central Eastern Europe (e.g. Slovakia, Czech Republic and Hungary). Consequently, the focus has shifted towards enhancing regasification capacity in or connected to these regions (Figure 4).

In spring 2022, Germany initiated an urgent LNG regasification capacity buildout program, starting with the first Floating Storage and Regasification Unit (FSRU) at Wilhelmshaven on Germany’s North Sea Coast, which commenced operations at the end of 2022. Germany now has 17 MMtpa (2.3 bcf/d) of floating LNG regasification capacity, with construction of two land-based regasification terminals currently underway. The Netherlands, a key player in Northwest European gas, has also increased its regasification capacity by 10 MMtpa. All of these capacity additions have supported the replacement, in particular of previous Russian volumes through Nord Stream to Germany and Yamal Europe to Poland.

In Southern Europe, Italy, which already had onshore and floating LNG regasification terminals, has significantly boosted its capacity with the addition of two FSRUs to 20 MMtpa at the beginning of 2025. Capacity additions have also been made in Croatia and Greece. These capacity additions have been key in replacing Russian pipeline volumes through Ukraine.

Overall, between 2021 and 2024, European LNG regasification capacity increased by 52 MMtpa, with an additional 41 MMtpa expected to be built out to 2030. The majority of this additional capacity is expected to be added in Germany. The 2021-30 increase in capacity is equivalent to the loss in Russian gas volumes in Europe, highlighting Europe’s need and readiness to increase LNG imports.

In the “Current Trend” scenario, European gas demand is projected to increase but will not reach the levels seen before the invasion, peaking at 37.5 billion cubic feet per day (bcf/d) by the end of the decade. Two additional scenarios have been developed: “Opening the Taps,” which involves increased flows of Russian gas and LNG, thereby reducing the need for US LNG and “Phasing Down,” which features decreased Russian supplies that could create more opportunities for US LNG.

Given the pivotal role of US LNG in addressing the European supply gap, reflecting both the nature and volume of Russian gas flows, along with sector-specific gas demand forecasts, will critically shape the future demand for US LNG exports. This, in turn, will have a substantial impact on the ability of US LNG projects to take final investment decisions (FIDs).

To assess the potential impact of different Russian gas supply scenarios on US LNG exports and the global gas market, S&P Global has developed and modeled two scenarios alongside its “Current Trend” Scenario, with an assumption that the market scenario direction becomes clear in the summer of 2025. These scenarios will provide insights into the future of Russian gas in Europe and its implications for US LNG export volumes and the broader gas market.

Given the volatility seen in policy on gas exports and imports, European policy decisions could evolve over time depending on wider political circumstances in Europe and globally thus validating all three potential scenario outcomes

European “Current Trend” Scenario

In the S&P Global “Current Trend” Scenario, European gas demand is expected to recover as prices gradually soften as the global LNG market loosens closer to the end of the decade. The recovery is expected to be led by industry as gas-dependent sectors such as fertilizer and petrochemicals return to profitability. Power generation is also expected to see a resurgence as gas prices move back into the coal-gas switching range, and as some coal generation capacity is retired. Nevertheless, due to a combination of permanent demand retrenchment caused by record high prices as well as ongoing penetration of renewables, Europe’s gas demand is not expected to return to pre-war levels and should peak by the end of this decade at the level of 37.5 bcf/d (Figure 5).

In the long-term, European gas demand will likely be in structural decline as Europe advances its net-zero GHG emissions ambitions, supported by strong policy signals. This means a continuation with investment in renewables, as well as heat pumps in the residential and commercial heating sector. More broadly, electrification increases by nearly 30% from today through to 2040, serving as a major decarbonization vector across all sectors.

Nevertheless, gas-fired generation remains crucial in the power sector due to gas’ increasing role providing baseload and balancing during period of renewables intermittency as renewables capacity additions increase. Recently, there has been a softening of policies on clean energy. For example, for the residential sector, policies to mandate renewable heat have been softened in Germany and the UK. The EU was previously considering a ban on gas boilers from 2035, but this appears to have dropped from the list of priorities. These “policy adjustments” result in higher potential gas demand as shown by the orange diamonds in Figure 5 and Figure 6. 

At the same time, Europe is also expected to experience a decline in indigenous supply and pipeline imports. Gas production from the North Sea will continue its terminal decline and Europe’s top gas supplier Norway is expected to experience a gradual fall in output long-term. The second most important source of pipeline imports, Algeria, is expected to see volumes decline on falling reserves and growing domestic consumption. Finally, Russian pipeline gas imports are expected to remain at the level of just 1 bcf/d or 3% of total European gas demand in 2040.

“Current Trend” Scenario Key Features: Russian gas continues to flow into Europe via TurkStream, with Russian LNG still being purchased by a limited number of European buyers and not subjected to EU sanctions. US sanctions, most notably on the Arctic-2 LNG project, continue to limit new Russian LNG projects until the end of the outlook and no additional gas volumes, pipeline or LNG, arrive in Europe above the currently delivered combined total of 4.2 bcf/d. However, Russia is able to grow LNG deliveries to the global market from 4.3 bcf/d in 2025 to 7.4 bcf/d by 2040 -- through the completion of 2 out of 3 trains of Arctic-2 LNG (13 million tons of total capacity) by 2031 and Murmansk LNG (21 million tons of total capacity) in 2038. Russia has significant shut-in upstream production capacity that can be turned up at short notice with limited or no investment required.

New Contracts Play a Key Role

New European contracts for LNG are expected to be critical to closing the supply gap to 2040 from demand, declining domestic production, declining piped imports and LNG contract expiry. To cover the deficit, European utilities and industrial consumers have added 2 bcf/d of long-term LNG contracts in the 2025-30 period. European International Oil Companies (IOCs) hold significant LNG portfolio positions with much of their volumes likely to be imported into Europe sourced from the United States. Nevertheless, Europe is heavily reliant on the global spot LNG market (i.e., short-term or single cargo contracts) to balance demand, leaving Europe highly exposed to spot market pricing volatility. This “supply gap” provides space for further LNG contract signings and thus potential for additional financing for liquefaction projects in the US and elsewhere (Figure 6). In theory, European buyers could continue to rely on short-term deals to procure LNG supply, however, the need for energy security and preference to reduce exposure to volatile spot markets has prompted some buyers to seek the assurance that comes with long-term supply contracts.

Russian Gas Scenarios

In addition to the “Current Trend” Scenario, S&P Global has developed and modelled two scenarios for future Russian gas and LNG in Europe and its impact on US LNG export volumes, as well as the global gas market (Figure 7):

“Opening the Taps” Key Features: Russian gas returns to the European market with an additional 2.7 bcf/d via the reinstatement of an existing pipeline route and expansion of LNG sales into Europe. This is on top of 1 bcf/d of Russian gas delivered to Europe via TurkStream. Sanctions on Russian LNG are partially lifted allowing, for example, for the completion of 3 Arctic Class LNG carriers in Korea’s shipyards, as well as for ship-to-ship transfers. This accelerates the development of existing and future Russian LNG projects. The third train of Arctic-2 LNG is completed in 2031 bringing the project’s total capacity to 19.8 million tons and Murmansk add 13.2 million tons by 2037 (“Current Trend” Scenario 2038), allowing Russia to increase its delivery of LNG to the global market from 4.3 bcf/d in 2024 to 8.6 bcf/d in 2040, instead of 7.4 bcf/d under the “Current Trend” Scenario. As a result, Europe receives a total of 9.3 bcf/d of Russian gas (pipeline and LNG) by 2040 instead of 2.7 bcf/d under the “Current Trend” Scenario (assuming that 75% of Arctic LNG-2 is delivered to Europe and similarly for Yamal LNG, while 100% of Murmansk LNG is delivered to the European market).

“Phasing Down” Scenario Key Features: Europe further restricts Russian gas supply and uses sanctions to institute a complete ban on Russian LNG into the EU² (or de-facto ban through the introduction of targeted high tariffs on Russian LNG). Logistical challenges around shipping and trade routes delay the ramp up of volumes from Arctic LNG and impact deliveries from Yamal. Pipeline flows continue to Southeast Europe via TurkStream, as per the “Current Trend” Scenario.

While Europe experiences the most pronounced impact from either the “Opening the Taps” Scenario or the “Phasing Down” Scenario—seeing an increase of 2.7 Bcf/d in Russian pipeline gas or a decrease of 2.1 Bcf/d in Russian LNG supplies compared to the “Current Trend” Scenario — the repercussions of these scenarios will extend beyond Europe in what is now a globally interconnected gas market. Variations in European LNG demand strongly impact the global LNG balance. Furthermore, alternative scenarios regarding the buildout of Russian LNG export capacity directly affect the global gas balance and the broader energy sector.   

Russia’s supply dynamics significantly impact US LNG export growth. The restoration or not of Russian flows will have considerable impact on US LNG investment and FIDs, with potential outcomes ranging from 16.5 MMtpa to 45.5 MMtpa in new capacity between the “Opening the Taps” and “Phasing Down” Scenarios. Up to $120 billion in new US LNG direct expenditures are at risk between these two scenarios.

As the fourth largest exporter of LNG, with over 30 MMtpa of LNG supply today, Russia is playing a key role in the global LNG market. Russia also has large-scale expansion plans, primarily from the Russian Arctic region. While volumes from the 10.8 MMtpa Sakhalin-2 plant remain in Asia, Yamal LNG volumes flow either into Europe or to Asia on a seasonal basis. On average, two-thirds of Yamal LNG volumes are exported to European markets including: France, Spain, Netherlands and Belgium, while much of the remainder are exported to markets in Asia with only marginal volumes delivered elsewhere. Since the invasion, Europe remains the primary offtaker of Yamal LNG volumes given over 50% of capacity is contracted as part of the portfolios of TotalEnergies, Naturgy and SEFE.

In the “Opening the Taps” Scenario, the introduction of additional Russian pipeline and LNG volumes is poised to trigger a global rebalancing response. In the medium term, these extra Russian pipeline volumes are expected to loosen the global gas balance and lower prices. This situation could create an upside demand response for natural gas. However, looking ahead to the long-term period of 2030-2040, the dynamics shift significantly. It is projected that 77% of the global energy system's response to the influx of Russian pipeline gas and LNG will stem from a decrease in LNG supply. This decline is primarily due to reduced new project LNG investment, especially in the United States.

During the 2030-2040 timeframe, the US projects currently seeking FID will influence the global LNG balance. Pre-FID US projects are expected to account for 17 MMtpa of the response to higher Russian supply compared to the “Current Trend” Scenario while other LNG exports account for only 6 MMtpa (Figure 8). At that point, only 23%, or 7 MMtpa, of the additional Russian gas and LNG volumes will be countered by demand responses outside the global gas market.

In the “Phasing Down” Scenario, any existing Russian LNG exports, particularly from Yamal, that do not land in Europe will flow to other markets as US LNG is most likely to meet the gas supply shortfall in Europe. Furthermore, for the “Phasing Down” Scenario, it is assumed that new volumes from Arctic-2 LNG and other Russian projects are unlikely to materialize due to sanctions and lack of access to key technology, increasing growth opportunities for US exporters.

In the near- and medium-term, Yamal LNG losing access to the European markets and having to seek demand destinations further ashore would likely lead to reduced output from the facility due to lack of access to sufficient LNG carriers to cover longer distance, resulting in reduced supply in the global LNG market. This would increase prices, leading to a global downside in gas demand from coal-to-gas and oil-to-gas switching. However, the real impact in the long-term on global LNG and gas markets would come from the expected lack of buildout of Russian LNG export capacity, including Arctic-2 LNG and Murmansk. This would open market space for LNG capacity buildouts elsewhere and particularly in the US in the long-term. The loss of 18 MMtpa of Russian LNG versus the “Current Trend” Scenario would be expected to be balanced by 12 MMtpa of US LNG exports (Figure 9) in addition to the “Current Trend” Scenario with only limited additional LNG supplies from elsewhere, and after a normalization of prices with only minimal response in global gas demand versus the “Current Trend” Scenario.

Implications for US FIDs

There are three reasons why the near-term shifts in the global LNG balance have a disproportional impact on US LNG exporters. These are the inherent flexibility associated with the Free-on-Board SPA model, significant number of potential projects and development speed to market and, finally, their relatively high delivered costs to market compared to Middle Eastern projects and the proximity of Pacific Basin producers. These three elements make US projects the most responsive to tighter market conditions and the most exposed in looser market conditions. Therefore, the “Opening the Taps” Scenario sees US projects account for just 29% of global FIDs between 2025-27 while in the “Phasing Down” Scenario, US Projects take a 49% share of global FIDs.

While in the “Current Trend” Scenario S&P Global assumes 33.7 MMtpa of US FIDs through 2025-27 (including 16.5 MMtpa that have already taken place year to date), a return of 2.7 bcf/d of Russian pipeline gas to Europe combined with a full expansion of Arctic-2 LNG would reduce the expected FIDs for this period to 16.5 MMtpa given the limited response from other sources of LNG supply and the wider energy system. US LNG projects would be responsible for the large majority of reduction in new global FIDs (Figure 10), with no new project FIDs expected in 2025 and 2026 beyond the April 2025 sanctioning of the Woodside Louisiana LNG facility.

If Europe stops taking Russian LNG and sanctions limit the ramp up and build out of Russian LNG projects, close to 45.5 MMtpa of US LNG capacity would be expected to FID in 2025-2027 (includes FIDs that have already taken place in 2025) as US projects benefit from advantaged flexibility and advanced development timelines. The US LNG FID outcomes for the “Opening the Taps” and “Phasing Down” Scenarios represent a delta of 29 MMtpa in capacity, which is equivalent to some $120 billion in US LNG value chain direct expenditure at risk in a “Opening the Taps” Scenario relative to the “Phasing Down” Scenario (Figure 11). The US LNG value chain direct expenditure at risk of $120 billion is based on an S&P Global study from December 2024, where it was estimated that the direct expenditure associated with one million tons of US LNG liquefaction capacity reaching FID approaches $4 billion considering associated liquefaction, pipeline and storage as well as upstream (Drilling, Completion, Facilities and Gathering & Processing) estimated capital and operating expenditures.

The contrasting implications of these scenarios highlight the delicate balance that the US LNG industry must navigate. On one hand, the potential for increased exports and investments in the face of restricted Russian gas supplies could bolster US energy security and enhance its role as a key player in the global gas market. On the other hand, the risk posed by a resurgence of Russian gas supply could undermine these gains, leading to significant financial repercussions for US LNG investors and stakeholders.

In summary, the future of US LNG exports is inextricably linked to the evolving landscape of Russian gas supply to Europe and globally. The interplay between these scenarios will not only determine the viability of US LNG projects but also shape the broader dynamics of the global gas market. As such, stakeholders must remain vigilant and adaptable, ready to respond to the shifting tides of geopolitical developments and market conditions.

S&P Global’s proprietary best-in-industry integrated energy market modelling process is connected to granular global gas and power models for credible detailed results and inputs.

Upstream leverages inputs and bespoke models to generate US market-based forecasts including required iterations for specific scenarios

In the “Phasing Down” Scenario, US liquefaction project FIDs are 29 MMtpa higher than in the “Opening the Taps” Scenario. With US LNG Direct Value Chain Expenditure (2025-40) assumed at $4 billion³ per MMtpa of liquefaction capacity FID’d, $120 billion of direct expenditure is at risk in the “Opening the Taps” Scenario.

Scenarios for EU natural gas imports from Russia

Market groupings used in the report.

Long-term LNG contracts, particularly US sourced gas, are potentially among European gas sources most challenged with the new EU Methane Emissions Regulation (MER). UK and Norwegian gas systems, which are typically sold on short-term contracts or on a spot basis, are already monitoring methane reporting and have little choice but demonstrate compliance (equivalence) with EU-wide regulations.

European industry participants and industry bodies⁵ have stated that the EU Methane Emissions Regulation is already preventing certain gas supply contracts from being signed. Uncertainties regarding compliance with requirements yet to be defined, liability risks, and potential penalties make it difficult for parties to assess risks and move forward with agreements.

US LNG is expected to meet the large majority of Europe’s projected “Current Trend” Scenario  supply gap through 2025-40, with Europe likely dependent on portfolio players and other LNG players with significant US offtake positions. Therefore, US export projects are likely to be disproportionately impacted by the methane importer requirements relative to other suppliers.