Australia’s top LNG group says unable to plug gap if Russia cuts off Europe


The chief executive of one of Australia’s largest liquefied natural gas producers has said that just a small fraction of his company’s LNG could be made available to Europe in the event of a conflict with Russia.

Kevin Gallagher, chief executive of Santos, said the vast majority of his company’s LNG was sold through long-term contracts to Asia, with only about 16 per cent of production earmarked for sale on the spot market.

Gallagher said LNG produced in Darwin on the northern coast of Australia could theoretically go to Europe but warned: “I’m not sure that would be enough for them.”

Last month, Australia’s resources minister Keith Pitt and energy minister Angus Taylor announced that the country was ready to help supply Europe with gas. In early February, Japan also offered to direct some LNG supplies to Europe.

Gallagher’s comments come as the prospect of a Russian invasion of Ukraine threatens to destabilise gas supplies in Europe. Almost 40 per cent of Europe’s gas comes from Russia.

Santos produced 92.1mn barrels of oil equivalent (mmboe) of LNG last year, with about 15 mmboe sold on the spot market. Similar volumes are expected to be sold on spot markets this year.

Gallagher said funnelling all of that output to Europe would probably “require government intervention or direction”, adding that he had not received such a request to redirect supply.

Given the high costs and time needed to ship LNG from Darwin to European ports, Gallagher said a more likely solution would be supply swaps.

“Some LNG cargos that are coming from the Middle East, instead of bringing them to Asia, they go to Europe, and you just do cargo swaps. I can see something like that happening in terms of the mechanisms of getting [LNG] to Europe,” he said.

Australia is the world’s biggest exporter of LNG, exporting about 80mn tonnes a year almost exclusively to Asian markets, according to Australian government figures.

Graeme Bethune, an energy analyst with EnergyQuest, said that even with spot prices as high as they currently are, it was not economic to ship LNG all the way to Europe.

“We track every cargo that leaves Australia, and they’ve just gone to all the usual suspects in Asia [in January],” he said.

Bethune said there needed to be “a big differential” in European and Asian prices for it to make economic sense to export LNG to Europe from Australia. “You need European prices to be significantly higher than Asian prices, and typically it’s around the other way.”

Santos reported record profits on Wednesday on the back of surging LNG prices. Gallagher said prices were driven by a “supply crunch” and called for an urgent increase in production, telling analysts on Wednesday that booming demand meant Santos was keeping very little in reserves.

He said 2021 had “brought global energy security into the spotlight with higher prices and a supply crunch in the wake of rapidly recovering demand and a lack of investment supply”, adding it was “vitally important that investment in new supply occurs”.

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