EU Seeks Legal Option to Stop Importing Russian LNG
Dear Readers,
Today, EU Energy Commissioner Kadri Simson urged a phase-out of Russian LNG exports to the European Union. Despite aims to cut reliance on Russian fossil fuels by 2027, imports of Russian LNG have increased. The EU has banned certain Russian oil imports. Simson called for member states to restrict Russian LNG based on supply security and noted a 17% drop in the EU's gas consumption due to efficiency measures.
We would like to share with you this post from April 3, 2023. However, to know where the EU is now, here is our latest report: EU’s Gas Imports Mix: Russian Gas Supplies to Europe Increased 6.4% in August
Another related report: Importance of Spain’s Natural Gas System to Europe
EU Seeks Legal Option to Stop Importing Russian LNG
On March 29, EU energy ministers agreed to find a legal option to halt LNG imports from Russia, by preventing Russian companies from bidding upfront for booking the infrastructure capacity needed to receive the super-chilled fuel. The proposal was raised on the back of the unprecedented growth of LNG shipments the EU received from Russia in 2022, compared to figures from 2021. The EU proposal, however, has no immediate impact on Russia since it has to be put to the discussion at the European Parliament, and such a process could take months.
Since Russia’s invasion of Ukraine, the EU has taken strong measures to reduce its reliance on gas from Moscow. The EU adopted a plan aimed at reducing Russian gas supplies by two-thirds by the end of 2022 and halting any remaining flows by 2027. Prior to the Russia-Ukraine war, the EU imported 155 billion cubic meters (bcm) of gas (piped gas and LNG) from Russia, 90% of which were delivered through pipelines while the remaining 10% were delivered via LNG tankers.
In 2022, the EU’s plan showed its effectiveness when Russian gas imports declined by 43%, according to the EOA’s calculations. Most of this drop was due to the shutdown of the Nord Stream 1 and the Yamal-Europe pipelines as a result of a dispute between Russia and the EU.
Despite this sharp drop in Russian gas imports, it fell short of the EU’s original proposal of a two-thirds reduction of Russian gas for 2022. Furthermore, Russia increased its LNG shipments to the EU by 54% from 2021 to 2022, reaching all-time highs of 22 bcm as shown in Figure (1) below.
Figure (1)
Source: EOA 2023 and GIIGNL 2022
Total Russian gas imports dropped in the EU gas supply mix in 2022, accounting for 23.8% of total gas consumption, down from 38% in 2021 (see Figure 2 below). This wouldn’t have been possible without great savings in gas demand in the industrial and residential sectors, assisted by an unusually mild winter that lowered the demand for gas.
Figure (2)
Operating LNG Plants in Russia
Although flows of piped Russian gas to the EU have dropped to record lows since the beginning of the war in Ukraine, imports of Russian LNG have significantly increased. Under the current sanction regime, any EU member can buy LNG (and piped gas) of Russian origin.
To compensate for the historic decline in piped gas flows, Russia kept LNG production at its LNG plants at maximum rates, benefiting from Europe’s appetite for the fuel. The largest LNG plant in Russia is the Yamal LNG project with a total capacity of 17.4 million tonnes per annum (MTPA), which is the source of LNG exports to Europe.
Russian gas producer Novatek currently holds a 50.1% interest in the Yamal LNG project, while TotalEnergies holds the remaining 20% together with CNPC (20%) and Silk Road Fund (9.9%). The French company originally became a partner in the project in October 2011 and decided later not to leave the joint venture to keep supplying Europe with gas. The Sakhaline-2 LNG plant is the second largest project with a total capacity of 10.8 mtpa. Meanwhile, Gazprom’s Portovaya LNG was launched in late September with a total capacity of 1.5 MTPA, and it exported its first LNG cargo to DESFA’s Revithoussa LNG import facility in Greece as shown in Figure (3).
Figure (3)
Operating LNG Plants in Russia
Source: EOA 2023
In 2022, the Yamal exported 21.5 million tons, while the Sakhalin-2 exported 10.5 million tons. Gazprom’s Portovaya and Vysotsk LNG plants in their turn exported low volumes due to their small nameplate capacities.
Top Buyers of Russian LNG in the EU
Russian LNG exports grew by 9.5% from 2021 to 2022, reaching an all-time high of 32.3 million tons. Russia exported 17.25 million tons of LNG to Europe, of which 16.41 million tons were unloaded in the EU. In 2022, such LNG imports reached record highs in France, Belgium, and Spain. France topped the list of EU buyers of Russian LNG, accounting for more than one-third of total Russian LNG imports. Spain, which is not originally a buyer of Gazprom gas, increased its LNG imports by 50%. Russia was the third largest LNG supplier to the EU behind the US and Qatar. And it would have been impossible for the EU to survive last winter without Russian LNG.
Figure (4)
EU’s Russian LNG Imports Still Growing in 2023
Last month, the European Commissioner for Energy, Kadri Simson, asked European countries and companies to avoid signing new LNG contracts with Russia, as part of the bloc’s plan to move away from Russian gas. As a result, Spanish Energy Minister Teresa Ribera requested local companies to shy away from new LNG purchases from Russia. However, these requests are not binding. Interestingly, Spain increased its Russian LNG imports so far this year by 250% y/y compared to the same period in 2022 (see Figure 5 below). Belgium has also increased its LNG imports from Russia by 75% so far this year, while France’s imports dropped by 28%.
Figure (5)
The EU’s legal option to prevent Russian LNG imports will put additional pressure on Europe to secure its gas needs due to the significant share of Russian LNG in the EU’s gas imports mix. Under current market conditions, Europe is not in a position to proceed with halting Russian LNG, especially amid a tight LNG supply market.