WoodMac LNG Team Looks at 3 Russia-Ukraine Peace Deal Scenarios

A stable Russia-Ukraine peace agreement could lead to years of U.S. LNG underutilization and delays on U.S. LNG Final Investment Decisions.

That’s what Wood Mackenzie said in a release sent to Rigzone by the Wood Mackenzie team on Tuesday, which highlighted a new report from the company’s gas and LNG team that “outlines three peace agreement scenarios and explores their potential consequences in terms of sanctions and the implications on trade flows and prices”. 

One of these scenarios is defined in the release as “no quick peace”.

“A failure to reach any agreement cannot be ruled out and would results in ‘stronger for longer’ gas prices as even less Russian supply comes to market,” Wood Mackenzie said in the release.

“A continuation of the war could see the EU double down on sanctions, pushing even harder to achieve its ambition of independence from Russian energy - banning LNG imports from the Yamal LNG project and the 15 billion cubic meter a year TurkStream pipeline,” it added.

“This scenario strengthens the need for more LNG supply, with U.S. and Qatar capitalizing on more investment opportunities,” it continued.

Another scenario is defined in the release as “a forced peace”. 

“Based on the dynamics of negotiations at this early stage, a peace deal effectively forced on Ukraine by the U.S. and Russia looks the more likely outcome, allowing for only a limited return of Russian piped gas and LNG into the market,” Wood Mackenzie noted in the release.

“The U.S. would be easing sanctions on Russian LNG exports to facilitate a deal, but a likely EU ban on Arctic LNG-2 would limit winter exports and curbs annual output at six million tons per annum,” it added.

“Meanwhile, the EU is unlikely to want… more exposure to Russian pipeline gas, although some additional flows into Hungary and Slovakia via Ukraine might be the price of keeping the bloc’s Moscow leaning members from vetoing on extension of EU sanctions on Russia,” it continued.  

Wood Mackenzie stated in the release that this limited return of Russian gas and LNG helps the market rebalance more quickly​, paving the way for lower prices.

“Some U.S. LNG projects in line for FID could face delay, but the overall impact on new LNG investments could be modest,” it highlighted.

Wood Mackenzie described another scenario in the release as “a stable peace”.

“A scenario where all parties sign up to a comprehensive and mutually acceptable peace agreement would open the door to material volumes of Russian gas into Europe,” Wood Mackenzie said in the release.

In this scenario, Europe could be looking to accommodate more Russian pipeline imports, by up to 50 billion cubic meters a year, Wood Mackenzie noted in the release. Meanwhile, the lifting of U.S. sanctions on Russian LNG raises exports to 12 million tons per annum, the company added.

“​As a result, European (TTF) gas prices would collapse well below the $8-9 per million British thermal units that we already anticipate in 2028/29, leading to years of U.S. LNG capacity underutilization and delays to several expected LNG FIDs,” Wood Mackenzie stated in the release.

“As a knock on to this, Henry Hub prices in the U.S. soften in turn due to lower than expected LNG exports, supporting more gas into domestic power generation and helping lower prices for U.S. consumers,” it noted.

“But with an average of 25 million tons per annum of capacity at risk of underutilization over the next five years, U.S. LNG would be the collateral damage,” it continued.

In the release, Massimo Di-Odoardo, Vice President of Gas and LNG Research at Wood Mackenzie, said energy will be a key part of the negotiation agenda of any peace deal.

“Removal of U.S. sanctions on its LNG projects will be the very least of Russian demands as it looks to reaffirm its position as a global LNG player,” Di-Odoardo added.

“The EU holds the keys for a potential return of Russian gas to Europe, meaning a comprehensive and mutually acceptable peace agreement is a pre-condition for any meaningful return of Russian pipeline gas,” it continued.

Di-Odoardo went on to warn in the release that the outcome of ongoing negotiations for a peace agreement between Russia and Ukraine remains highly uncertain.

“All scenarios are possible, including potential combinations of them, however, recent development[s] suggest a peace agreement where the U.S. and EU take different approaches to lifting sanctions, appears more likely,” Di-Odoardo added.

Rigzone has contacted the White House, the U.S. Department of Energy, the Department of Information and Press of the Russian Ministry of Foreign Affairs, the Press Office of the Ministry of Foreign Affairs of Ukraine, the European Commission Chief Spokesperson, the American Petroleum Institute, and the State of Qatar’s Government Communications Office for comment on Wood Mackenzie’s release.

At the time of writing, none of the above have responded to Rigzone.

In a breaking news market update sent to Rigzone on March 12, Rystad Energy’s Head of Geopolitical Analysis, Jorge Leon, said the energy market implications of a Ukraine-Russia ceasefire could be huge.

“A permanent ceasefire between Russia and Ukraine would have wide-ranging and sweeping implications for global energy markets,” Leon said in that update.

Rigzone previously contacted the White House, the Department of Information and Press of the Russian Ministry of Foreign Affairs, the Press Office of the Ministry of Foreign Affairs of Ukraine,  and the European Commission Chief Spokesperson for comment on Leon’s statement. None of the above responded to Rigzone.

To contact the author, email andreas.exarheas@rigzone.com