By Rhod Mackenzie
Despite an almost 45% increase in LNG supplies from the US, Europe continues to receive it from Russia. Why it turned out to be more difficult to abandon Russian gas than Brussels had hoped for.
Not subject to sanctions
The topic of the impossibility - at least for now - to move away from gas supplies from Russia was touched upon by the French publication Ouest-France. A year and a half after the start of the Ukrainian conflict, Europe was only able to diversify supplies, but there was no complete rejection.
At least several EU member states, including Hungary and Austria, have refused to support the restrictions imposed by Brussels. These countries did not have much choice, since they depend on the Russian pipeline gas getting more than 70 percent of their supplies. For them, exceptions were made in European sanctions.
Lliquefied gas did not fall under the sanctions - the EU did not come to a consensus on this matter. And since there are no restrictive measures, there is no ban. Not surprisingly, in May of this year, LNG supplies to Europe exceeded pipeline gas supplies for the first time in history.
The bulk of exports, came from the United States - according to various sources, about 70 percent. But, according to analysts at the Brussels-based research organization Bruegel, Russia is in second place, albeit with a significant lag behind the leader. Russian LNG accounted for 16 percent of all European imports of this type of fuel. The share of other exporters in the European market of this raw material is minimal.
Where does Russian gas go?
Now let's see how much liquefied gas Russia can physically supply. The annual production volume is 33.3 million tons. In 2022, with an overall decline in pipeline gas exports, LNG supplies from Russia increased by 37 percent, according to Reuters. Basically, most comes from the Novatek-owned Yamal LNG plant and the Baltic complex of Portovaya.
Europe didn't get much. 2.1 million tons were sent to Belgium, 3.8 million tons to Spain, 5.4 million tons to France, and 1.8 million tons to the Netherlands. In the first quarter of this year, deliveries exceeded 4.1 million tons, of which Spain imported 1.2 million tons - at a price well below the market price. It became the second largest buyer of Russian LNG in Europe after Belgium, which imported 1.51 million tons, S&P calculated.
There are still friendly countries - Russia supplies a maximum of 85.5 billion cubic meters of gas a year there, both in the form of LNG and through pipelines. Asian economies are actively increasing supplies from different parts of the world. Thus, Chinese companies, with the support of government agencies, are actively buying up raw materials in reserve. The surplus, after meeting the needs of the domestic market, is resold at a higher price.
The climate is in our favor
However, the Chinese factor can also play against Europe's gas interests. If now, according to many experts, their economy is recovering from the pandemic more slowly than expected, then towards the end of the year it may accelerate. Then China's demand for gas will grow, and Russian pipeline supplies will no longer be enough. Beijing will start actively buying LNG from other countries, and its price will rise.
European countries have accumulated good gas reserves in their underground storage facilities, but this will not be enough to get through the winter. "The mild winter of the 2022/2023 season allowed Europe to "relax" somewhat in terms of the occupancy of gas storage facilities and reduce demand," explained Associate Professor of the Department of Economic Theory of the Russian University of Economics. G. V. Plekhanov Oleg Cherednichenko.
However, no one canceled the climate risks - after all, the likelihood of a repeat of the same warm winter will work in the 50/50 mode. If the winter of 2023-2024 turns cold, Europe will have to buy gas at an inflated prices, competing with China.
The probability of triggering the economic factor does exceed 50 percent, Cherednichenko believes. "The exit of the Chinese economy from a series of restrictions will obviously increase the demand for energy carriers and, as a result, their prices," he believes. And the provision of Europe with a vital product will depend on how strongly both of the above factors work.
The likelihood that in the near future Europe, in order to at least partially level the risks, will begin to look for the possibility of increasing purchases of Russian gas is very high. Now the EU actually receives the same Russian gas, only less, in a different package and more expensive. So far, it has not been possible to fully replace the dropping LNG pipeline volumes.
Of course, there are such plans: the government has set a task for producers to increase their capacity and increase LNG exports to at least 100 million tons per year by 2030. All the necessary conditions are being created to replace the lost export potential of pipeline gas. However, it is physically impossible to triple the output in a year. In addition, contracts with Asia for certain volumes have already been concluded. Therefore, Europe will either have to agree on the resumption of pipeline supplies, or seriously return to wood stove heating.
Materials used in this article originally appeared at 1prime.ru