Save for later Print Download Share LinkedIn Twitter Natural gas markets are undergoing a radical reordering that will ripple for years to come. The changes, prompted by suspension of a percentage of Gazprom’s natural gas shipments to Europe in the wake of the Ukrainian war, highlight just how global natural gas has become as a commodity and how deep the supply hole for LNG may really be. The crisis seems to imply, too, that natural gas is about to see a renewed heyday. Several international majors have announced they will be fast-tracking new LNG export projects. Floating LNG receiving terminals have found their time as well. But with accelerating renewables also vying to replace gas, the outlook beyond next year could be worse than eye-watering spot LNG prices might imply. This raises questions about long-term viability for some of the LNG export projects now being planned.Unlike Russian crude oil exports which have so far proven more flexible and fungible than expected, the scale of the loss of Russian gas exports has been consistently underappreciated. Russia might normally have been shipping upward of 200 billion cubic meters per year to Europe, had the conflict not taken place. Instead, Russian exports to Europe inclusive of Turkey have plummeted to 50 Bcm this summer, a reduction from 2019 of close to 75%. That is on top of lower-than-usual shipments in 2021 of 168.7 Bcm.With so much gas out of the picture, Europe has bid LNG away from most smaller markets. Pakistan has triggered rolling blackouts because it can no longer afford the fuel. Argentina exited the LNG market in August while Indian natural gas distributor Gail has had to cutback shipments to major customers because it cannot secure sufficient LNG. Bangladesh and Sri Lanka also cannot find cargoes.Interfuel Competition: Uncharted WatersBut the exceptional, globalized surge in LNG prices has a potential sting in its tail — by fast-tracking efforts to move away from fossil fuels entirely. While Europe's response to this year’s supply gap includes fast-tracking floating LNG receiving terminals, it also aims to accelerate renewable energy development, delay nuclear plant closures, expand energy efficiency measures, and increase solar installations and use of heat pumps. All in all, Europe is aiming for renewables to reach 63% of electricity generation by 2030, up from a previous target of 55% prior to the Ukraine crisis. It is also dedicating substantial resources to green hydrogen development with plans to install 40 gigawatts of renewable hydrogen electrolyzers to produce as much as 10 million metric tons per year of renewable hydrogen by 2030.It’s not just Europe that is rethinking just how much renewable energy it can fast-forward. China and India are too, while the new, unexpected US climate bill is bound to push renewable costs down in the US and jump-start hydrogen as an emerging low-carbon fuel. Canada has also recently announced a major green hydrogen project including the installation of an 88 megawatt water electrolysis plant for Hydro-Quebec in Varennes.Rethinking Asia Mega MarketsProspective LNG sellers are hoping to tap giant emerging markets in China and India, but there as well, renewable energy could provide fiercer competition than expected — again as governments intervene in markets with incentives. Both are speeding the transition to renewables in the power generation mix, with China hoping to grow renewables to 25% by 2030, up from 16% in 2020, with natural gas demand growing in the country’s net-zero planning but not to the same extent as renewables.In India, renewables, including hydro, have reached roughly 40% of installed generation capacity this year and are targeted to grow to 61% by 2030. Renewables now constitute 21% of generation capacity. In fact, India’s new government targets include reaching 450 gigawatts of renewable electricity capacity by 2030. That contrasts with natural gas, which is no longer a key focus for government net-zero planning. India is also aiming to reach 65% of all new vehicle sales to be electric by 2030. As part of this process, India has created national missions on electricity storage, batteries and hydrogen. In 2017, India added more renewables than coal for the first time in history, and this year it ranks third globally for renewable capacity additions at new installations totaling 13.5 GW since 2021.Some of India’s biggest private-sector players have stepped up to the plate, including Reliance Industries, which has signed a memorandum of understanding with the Indian state of Gujarat to invest $80 billion in low-carbon energy projects, including $10 billion in renewable energy and additional funds to build out green hydrogen infrastructure. Reliance has also committed $8 billion in solar panel manufacturing. As part of its pivot, Reliance is trying to sell a 20% stake in its traditional oil and chemicals business to state enterprise Saudi Aramco. Reliance Industries operates 1.2 million barrels per day of oil refining in India. State-owned ONGC is also investing heavily in offshore wind.Several major African states are also increasingly turning to hydro and renewables to make ends meet for their energy grids instead of natural gas. It remains to be seen how many other countries that may be unable to afford LNG for the next six months will turn to more permanent alternatives to natural gas.Gazprom Left Stranded?While it’s too early to say whether acceleration of renewables and eventually hydrogen, combined with demand destruction from exorbitant spot prices, could create a new glut of excess LNG export capacity post-2030, Gazprom’s Siberian reserves could easily be at risk of stranding. Europe has opened the possibility of zeroing out Russian natural gas imports by 2030, if not sooner.Fundamentally a pipeline shipper, Gazprom is unable to divert its Siberian gas to other markets. Russia is on pace to send only 16 Bcm this year through its one Siberian pipeline to China. A new pipeline deal to China could have challenging economics amid competition from both other gas suppliers and domestic low-carbon fuels, and Russian firms will also have trouble gaining spare parts and technology licenses for expanding LNG. Higher Russian LNG sales to China of 3.2 Bcm are also a drop in the bucket. Instead, Chinese buyers are loading up on future US LNG purchases, contracting for about a third of the approximately 160 Bcm of the next wave of current or planned US LNG export capacity.Questions also loom over Russia’s existing and planned LNG projects, such as Baltic LNG and new trains for Arctic LNG, which are now subject to Western sanctions and will have difficulty attaining financing, technical assistance, and technology licenses and spare parts. This could make room for more expensive projects such as fast-moving US and African projects, but the timing window could be critical. Rystad Energy predicts LNG project approvals will “fall off a cliff” after 2024 as energy transition factors discourage new greenfield programs.Long-Term OutlookWhether other prospective LNG players might not fully be able to realize current optimistic returns on new investments remains to be seen, but with so many bets in the same direction, long-run overcapacity in natural gas cannot be ruled out.Wood Mackenzie consultants' business-as-usual forecast had optimistically anticipated a doubling of LNG demand by 2040 based on rising demand and declines in legacy assets, but its 2°C scenario posited a more circumspect increase of 150 million tons/yr based on dropping demand in Japan and peaking of demand in China and South Korea by 2035. But even this lower forecast banks on increases in South Asian and Southeast Asian demand, which might not materialize as expected in the aftermath of this year’s crisis. While Woodmac’s modeling assumes that electrification and green hydrogen curb LNG post 2040, it is now reasonable to question whether a hastening of both technologies might alter the outlook for LNG sooner.Rystad Energy calculates that $32 billion in LNG infrastructure is on the books for 2023, with another $42 billion possible for 2024. The profitability of these new projects counts on thriving, high-priced markets over the 20-year time frame. With multiple governments offering incentives for a shift over to hydrogen, it may be time for some bold LNG portfolio companies to consider whether to take that pivot more decisively.Amy Myers Jaffe is research professor and managing director at the Climate Policy Lab at Tuft University's Fletcher School, and the author of "Energy's Digital Future." The views expressed in this article are those of the author.