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21 February 2025
The rapidly shifting geopolitical landscape is forcing a reassessment of assumptions regarding Russian pipeline gas flows to Europe. In light of renewed speculation over a potential restoration of Russian energy supplies under a peace agreement scenario, we wondered about the implications for the LNG and LNG tanker markets. Marsoft’s Dr. Hauke Kite-Powell and Ryan Uljua reviewed possible implications for LNG prices, shipping demand, and the broader energy market.
There has been a whirlwind of activity and policy discussions from the Trump administration. How has Marsoft’s view on Russian gas changed? Our Base Case scenario calls for no change in Russian pipeline gas flows to Europe relative to current levels, and we still consider a return to pre-Ukraine-invasion volumes unlikely. But we must consider the consequences of such a return, regardless of the scenario’s likelihood.
How does Marsoft evaluate the impact of a resumption in Russian pipeline gas flows to Europe? We believe the LNG markets will rapidly equilibrate. A substantial increase in Russian pipeline supplies to Europe will sharply reduce European LNG imports, pushing down LNG spot prices in Europe and, by extension, in Asia. However, lower LNG prices would also stimulate demand from price-sensitive buyers, partially offsetting Europe’s declining import demand.
The dynamic would affect US LNG exports the most, which would face greater competition but could also benefit from longer-haul exports to Asia, thereby boosting tonne-mile demand for LNG carriers.
How much would LNG prices need to drop for other importers to absorb the LNG volumes displaced by Europe resuming pipeline supplies? In our Base Case, in which Russian pipeline flows remain cut off, LNG spot prices are relatively strong in 2025 and 2026 at $15-16/mmBtu, then decline to $10 by 2027.
If meaningful Russian pipeline gas returns to Europe in the second half of 2025, our analysis shows that LNG spot prices will fall to $9/mmBtu in 2026, $8 in 2027, and $6 in 2028. At those steep discounts, price-sensitive importers would likely absorb 80% of the displaced seaborne LNG no longer flowing to Europe.
For the market to fully absorb the excess LNG, spot prices would need to fall by another $2/mmBtu to $7/mmBtu in 2026 and $6/mmBtu in 2027.
At those lower prices, would US LNG projects still be incentivized to export? Almost, but profit margins would be squeezed – sunk capital costs are unlikely to be recovered. US LNG remains competitive even at $6-7/mmBtu, but as prices approach $6/mmBtu in Asia/Europe, US margins become thin.
In a supply glut scenario, we’d likely see Henry Hub prices retreat toward $3/mmBtu, which would help bring FOB costs at US terminals down below $5/mmBtu.
What is the impact on the LNG tanker market in the Russian resumption scenario? A resumption of Russian pipeline flows to Europe would be a very positive scenario for LNG tanker rates given these price developments. In our Base Case (in which Russian pipeline gas exports do not resume), LNG spot shipping rates remain range-bound around $50,000/day from 2026-2029.
However, if Russian gas flows resume, US LNG would have to find buyers further afield—resulting in long-haul exports to Asia and higher tonne-mile demand, which could push spot shipping rates as high as $100,000/day by 2027.
Where can we learn more about this scenario? Our upcoming market update will provide a deeper dive into the potential impacts of Russian pipeline gas resumption on LNG pricing, global trade flows, and shipping demand. Marsoft will continue to monitor geopolitical developments and offer insights on how these shifts reshape the energy and shipping landscape. Stay tuned.