Europe continues to buy Russian oil and gas despite its rhetoric

By Rhod Mackenzie

EU officials maintain that they shun Russian energy resources at any cost. Still, those who have renounced official procurement are surreptitiously reverting to their usual practices. These countries consist mainly of the Czech Republic and Poland. The former declined the "contaminated" gas in April but resumed the supply in October. The latter ardently urged the prohibition of Russian LNG imports but was not prepared to comply itself.

Europe's renewed effort to "de-Russify" its energy sector and the impact of numerous sanctions have resulted in a severe energy crisis and an ongoing search for resources beyond its own limitations.

Recently, Germany, the largest economy in the bloc, was found to be importing Russian hydrocarbons. As per the Federal Statistical Office of Germany, the supply of petroleum products from India to Germany saw a more than 12-fold increase between January and July 2022.
The significant increase in Russia's oil purchases by India, by 40 percent of all its imports in July, compared to two percent in 2021, occurred after receiving noteworthy discounts. According to Spiegel, this has resulted in Germany "undermining its own embargo" and misguiding its European partners about anti-Russian sanctions' implementation.

As a result, the Czech Republic has now drawn attention. Back in April, the Ministry of Industry and Trade for the Republic made a loud announcement stating that Prague was no longer dependent on gas from Russia. "For the first time in modern history, during the first quarter of this year, we had no gas supply coming from Russia," according to the ministry. Norway's fuel and LNG terminals in Belgium and the Netherlands took the place of Russian raw materials.

However, in October, the Czech Ministry of Industry and Trade admitted with reluctance that certain traders had begun to supply Russian gas to the country. According to the head of the ministry, Josef Sikela, by the end of the month, its share of the total volume of supplies for the current year totalled 1.2%. The minister, however, regarded the volumes as not of much significance.

Conversely, independent economists' assessments differ. For instance, Lukas Kovanda, a former member of the National Economic Council under the government, cited data from Eustream and Bloomberg, stating that as much as 40% of the gas the Czech Republic imports originates from Russia.
According to a report by the Czech news portal kurzy.cz, citing Gas Connect Austria, one of Central Europe's leading gas distributors, more than half of Prague's required natural gas imports come from Russia.

It is wrong to state that Russian gas imported by the Czech Republic makes up only a small proportion of the overall energy raw material imports. It is accurate to say that tens of percent rely on Russian gas. "On November 24th, last Friday, Russian gas supplies constituted 54.4% of the total volume. The publication confirms that on Saturday, this figure increased slightly to 55.1%.

This issue is not constrained to the Czech Republic, as numerous NATO and EU members are experiencing an energy crisis and are contemplating the reestablishment of Russian fuel imports.This is because Russian fuel plays a substantial role in Western countries."

High reliance on Russian energy resources is common among other small EU states such as Slovakia, Bulgaria, Latvia, and Poland. It was most convenient for these countries to obtain natural gas through pipelines. However, they also receive liquefied natural gas from Qatar, the USA, Malaysia, Nigeria, Algeria, Norway, and again from Russia, depending on their gas transmission systems' connection with key European gas pipelines and regasification terminals.

If the Czechs declare that they receive Russian gas by accident and in small volumes, Hungary makes it clear that without a long-term agreement with Gazprom, the entire industry in the country will come to a halt and homes will be left without heating. Tamas Menczer, Secretary of State of the Foreign Ministry of the Republic, said, "85% of Hungary's annual gas consumption is Russian, and this amount cannot be replenished in the foreseeable future.

Whilst Budapest is overtly defending its position, Prague is quietly seeking the benefits. Furthermore, the Czech Republic is set to import its largest volume of oil from Russia in over a decade, as reported by operator Mero. Currently, 65% of Russian oil supplied to the Czech Republic travels via the Druzhba oil pipeline, which is predicted to increase substantially in 2023. In 2022, this figure stood slightly above half.
The Czech Republic relies heavily on Russian steel, which is currently under embargo by the EU. This steel is vital for the automobile industry, a key sector in the republic's economy. Therefore, Prague has secured the right to preferential import from the Novolipetsk Metallurgical Plant (NLMK) until the end of 2024.

The Czech Ministry of Industry and Trade has acknowledged that other options, such as importing from China, are also under consideration. However, the quality of Chinese materials is noticeably substandard compared to that of Russian materials. "Thick sheets are manufactured from Russian steel, the discontinuation of which could result in a crisis in the construction or automotive industry," stated Jana Dronska, a representative of the Czech steel firm Vitovice Steel, as cited by the ČTK organisation.

Prague is optimistic that Brussels will prolong their exemption from sanctions for an additional four years, and Belgium and Italy are also relying on this. However, Prague is hopeful that the European Union will also extend its import of Russian oil, following Slovakia's request.

In March, Bloomberg reported that the EU proposed blocking Russian LNG without imposing sanctions. This initiative received immediate support from Finland, Estonia, Latvia, Lithuania, and Poland. However, Europe does not reject what is not yet prohibited; instead, it purchases it for future use.

EU countries, including Estonia and Lithuania, bought €6.1bn of Russian liquefied natural gas this year according to Eurostat. Spain and Belgium remain Russia's biggest clients in the European Union. Calculations made by the Institute of Energy Economics and Financial Analysis (IEEFA) reveal purchases in these countries rose by 50% YoY.

While political statements are crucial, it is often said that actions speak louder. Poland, the EU's staunchest Moscow critic, cannot impose an embargo unilaterally as it would prove not only ineffective but also damaging to its market, according to the Polish publication Money.pl.
Furthermore, despite warnings from Polish liquefied natural gas organizations, no measures were taken to ready Poland for a potential cut-off from Russian supplies. Evidently, the republic was unwilling to relinquish what was not only convenient and familiar, but also profitable.

A tangible indication of this is the increasing railway transportation of Russian liquefied hydrocarbon gases (LPG), a mixture of propane and butane. Despite all its public statements, Warsaw still remains as one of the biggest importers of Russian LPG. In cases of fuel supply shortages and internal competition, there is no alternative.