Over the past two years, Europe has rapidly distanced itself from Russian energy commodities in protest against Russia’s war in Ukraine. The European Union first imposed an embargo on imports of crude oil from Russia in December 2022, followed by an embargo on oil products (including gasoline and diesel) in February 2023.
In the meantime Natural gas imports have fallen from around 450 million cubic metres per day (million m³/d) at the end of 2021 to around 150 million m³/d currently.
The remaining gas flows are roughly split between LNG, pipeline flows through Ukraine and other pipeline routes (mainly flows via Turkey to Bulgaria, plus a small flow via Belarus to Lithuania). Europe has now emerged from two winter seasons with plenty of gas, despite drastic cuts in Russian imports.
Europe’s gas reserves were almost 60% full until the end of the winter season in April 2024, a record for the end of the winter season.
At first glance, this achievement seems impressive. But it belies the fact that the continent has made little progress in reducing Russian supplies for nearly two years, despite some countries calling for a complete abandonment of Russian energy products even as the war in Ukraine shows no signs of abating.
In fact, energy commodity analysts at Standard Chartered have reported that there has been no progress in reducing imports since the Nord Stream pipeline was shut down. On the contrary, Europe’s gas imports from Russia have increased by about 50% since the first quarter of 2023.
Ukraine latest military advance to Russia’s Kursk Oblast has raised market concerns about gas flows through Ukraine; however, StanChart believes these fears are exaggerated. Russia and Ukraine signed a five-year pipeline transit agreement to supply Europe with natural gas back in 2019. However, Kyiv has signaled that it will not renew the pact when it expires on December 31, 2024, while EU Energy Commissioner Kadri Simson specified that the EU executive has “no interest” in pushing for a revival of the agreement.
Gas from Ukraine accounts for 5% of the EU’s total gas imports. Aura Sabadus, senior analyst at market research firm ICIS, told Politico that Austria, Hungary and Slovakia will likely be hit the hardest if imports are halted. However, StanChart says there is enough capacity elsewhere to replace gas flows via Ukraine. The commodity analysts have pointed out that non-Russian LNG flows to the EU have dropped by ~140 million cubic meters/day since April. If this were to happen again, it would be enough to replace Russian LNG almost three times over. According to the analysts, the withdrawal of the last Russian molecules from the EU is more a matter of political will, which some European countries seem to lack.
StanCharts Feelings are largely confirmed This is according to the findings of Bruegel, a Belgium-based economic think tank, but with some important caveats. Bruegel has looked in detail at how the EU would fare if Europe’s supply of Russian gas were disrupted.
The main conclusion is that the EU could not only survive the next winter without Russian gas, but also without experiencing an economic catastrophe. However, to do so, Europe would have to overcome severe technical and regulatory challenges and reduce its annual natural gas demand by 10-15%, as no amount of non-Russian imports would be enough to adequately replenish stocks before next winter.
First sanctions against Russian gas
Already in June EU approved sanctions on Russian gas, the first time since Russia invaded Ukraine. The Belgian EU presidency says the EU will impose unprecedented sanctions on Russia over its lucrative gas sector – a move that could potentially wipe hundreds of millions from Moscow’s war chest.
The decision came after Germany and Hungary spent weeks delaying a deal – albeit on different parts of the package. As one might suspect, the penalties will not affect the majority of Russian liquefied natural gas (LNG) exports to the EU; instead, the proposed sanctions would prevent EU countries from re-exporting Russian LNG after receiving it and would also prohibit EU involvement in future LNG projects in Russia. The sanctions would also prohibit the use of EU ports, financing and services to re-export Russian LNG, which would essentially mean Russia would have to rework its LNG export model. Currently, Russia supplies LNG to Asia via Europe, with Belgium, Spain and France being the main hubs.
“If they cannot transship in Europe, they may have to take their ice tankers on longer voyages,“Laura Page, a gas expert at data analytics firm Kpler, told Politico, adding that Russia “may not be able to get as many cargoes out of Yamal because their ships cannot return so quickly.”
Norway and the United States have overtaken Russia as Europe’s largest gas suppliers: last year, Norway supplied 87.8 billion cubic meters of gas to Europe, accounting for 30.3 percent of total imports, while the United States supplied 56.2 billion cubic meters of gas, accounting for 19.4 percent of total imports.
By Alex Kimani for Oilprice.com
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