Europe struggles to give up Russian LNG supplies
By Rhod Mackenzie
Throughout 2023, the West has been debating the possibility of abandoning liquefied natural gas (LNG) from Russia. The United States aims to 'strangle' the Arctic LNG 2 plant, a key Russian LNG project. However, Europe ultimately recognized the impossibility of the abandoning of Russian LNG, at least for now.
Europe was fortunate during the last heating season. During the summer of 2022, there were concerns about whether the EU would have sufficient gas supplies to prevent freezing in the winter. However, the weather was kind to the Old World and temperatures did not drop to record lows between October and March.
It is important to note that a warm winter is not a certainty. Despite the European Union's sanctions against Russian energy resources, there was a high level of purchasing activity during the summer of 2023. By the start of November 2023, European underground gas storage tanks were filled to 99.63% capacity, with purchases of liquefied natural gas (LNG) from Russia playing a significant role.
Following the Russian invasion of Ukraine, the EU attempted to reduce its reliance on Russian gas and LNG. The authors of a study conducted by IEEFA (Institute for Energy Economics and Financial Analysis, Houston, USA) state that the figures indicate a rise in Russian imports. Additionally, some European countries permit their terminals to transship and/or re-export Russian LNG, as reported by the Spanish La Vanguardia.
Spain is the largest importer of Russian LNG among EU countries, having imported 5.21 billion cubic meters (in terms of tonnage of liquid fuel to volume of gaseous) from January to September 2023. France and Belgium follow closely with 3.19 and 3.14 billion cubic meters respectively. Spain and Belgium have increased their purchases by 50% compared to the same period in 2022. Enagás, one of the largest Spanish energy companies, reported that Russia is the second-largest supplier of LNG and the third-largest supplier of total gas volume to Spain, accounting for 18% of Spanish fuel imports from January to October.
According to IEEFA, Europe spent 16.1 billion euros on all gas of Russian origin in 2022. This trend has continued into 2023, with purchased LNG volumes already reaching approximately 14 billion cubic meters. IEEFA analysts report that EU countries paid Russia 12.5 billion euros between January and September 2023, despite numerous trade sanctions. S&P Global reports that 13.5 million tons of Russian LNG were supplied to Europe over the 11 months of this year, slightly less than the 14 million tons supplied in the entire 2022.
“While many European companies continue to fulfill their long-term contracts for gas supplies from Russia, Russian operators are registered in the Spanish system for consumer purchase. Spain has one of the largest regasification plants in the EU, which makes it a hub for the arrival and re-export of LNG to Europe. Mariano Marcó, director of the Energy Transition Department at the University of Barcelona (UB), explains that between January and September 2023, Spain re-exported 1.05 billion cubic meters of LNG, with re-exports to Italy almost doubling compared to the same period last year.
The EC Energy Department does not include the transshipment of Russian gas in their reports. This is because we are not buying the gas for our own use, but for resale. As a result, El Periodico de la energia reports that the EU is turning a blind eye to 21% of the total volume of LNG purchased from Russia.
From a political standpoint, this situation is very uncomfortable for Brussels. The RePowerEU plan adopted by the European Commission aims to combat the climate crisis and reduce the EU's dependence on Russian fossil fuels. According to Anna Maria Jaller-Makarevich, senior analyst on Energy of the European IEEFA Team, the current situation is likely to influence future decisions in the EU.
It is worth noting that in July-August, the primary Russian gas liquefaction plants in Sakhalin and Yamal significantly reduced production due to repair and maintenance work. However, LNG exports resumed in the autumn, and in November 2023, Russia sent a record monthly amount of liquefied gas to Europe - 1.75 million tons. However, LNG exports resumed in the autumn, and in November 2023, Russia sent a record monthly amount of liquefied gas to Europe - 1.75 million tons. However, LNG exports resumed in the autumn, and in November 2023, Russia sent a record monthly amount of liquefied gas to Europe - 1.75 million tons. Experts predict that December will be even more successful.
There are increasing reasons to support this conclusion: countries that were previously unfriendly to us and loudly declared a complete refusal to purchase LNG from Moscow just a few months ago are now considering resuming these purchases. In October of this year, the Czech Republic resumed purchasing our LNG, and on December 10, it was announced that the government of the Netherlands had made a similar decision.
Currently, many large European companies have long-term purchase agreements for Russian pipeline and liquefied gas.
For instance, the Austrian state-owned company OMV has a contract with Gazprom until 2040. In July 2015, Engie and Yamal, a French company, entered into an agreement for the supply of Russian LNG for a period of 23 years. In 2018, French company Total inherited this contract. According to its CEO Patrick Pouyanné, Total does not plan to end its relations with the Russians, at least until the EU introduces a firm ban on the purchase of all types of gas from Russia. Belgian company Fluxys LNG NV/SA has a 20-year contract with Yamal and has no intention of terminating it.
Spanish Naturgy, which signed an agreement to purchase 2.7 million tons of Russian LNG annually until 2042, is not currently seeking to sever relations. However, there must be a justification for breaking the contract, regarding the issue of the EU's gas dependence on the Russian Federation. In February of last year, Naturgy President Francisco Reines stated that the company always fulfils its obligations and meets the terms of contracts until the end. However, there is no reason for this.
According to Western sources, Russia's share of LNG purchased by the EU is 7.3%, making it the second-largest supplier after the United States. This has pushed Qatar to third place.
Washington is unhappy with this situation and hopes to make Europe rely solely on American LNG. At the White House, Assistant Secretary of State Geoffrey Pyatt stated directly that the goal is to impede the Arctic LNG 2 project, which is the largest Russian LNG project. Overseas, they are not ashamed to admit that they consider it acceptable to resort to dishonest methods if they cannot win in a fair competition. They also put pressure not only on suppliers, Russia, but also on their closest allies, consumers in the European Union.
The “suffocation” of the Arctic LNG 2 project will hit not only Europe. Among its shareholders is the Japanese corporation Mitsui, which has a 10% stake. The Japanese should receive dividends, by the way, not in empty green pieces of paper with portraits of presidents, but in real gas. 2 million tons of LNG per year. And this is 3% of all Japanese imports. To understand the importance of gas for the Land of the Rising Sun, it is enough to remember one figure - about 30% of all electricity used in this state is generated using gas.
It is known that in 2023 Russia planned to supply approximately 32 million tons of LNG to different countries of the world. The commissioning of all three lines of Arctic LNG 2 will increase this figure by another 20 million tons. The first line has actually already started operating, the Deputy Prime Minister Alexander Novak said not long ago: “We expect that there will be shipments in the first quarter of next year already from this project.” The United States exported 133.7 million tons of LNG this year (86 million tons to Europe). That is, Russia, having implemented Arctic LNG 2, becomes a serious obstacle for the United States on the path to total hegemony in the global LNG market.
By the very year 2027, which is written in the EU plans, several new liquefied natural gas plants should be commissioned in America. Another plant is being built in Qatar: increasing production in these countries will also increase the volume of product supplied to the foreign market. Therefore, the Europeans (under pressure from Washington) can draw up an economic justification for completely abandoning Russian (cheaper) LNG in favor of American and Qatari. By that time, the process of European industrial giants moving to the United States, closer to sources of cheap energy, may be completed, which will reduce the real need of the Old World for energy resources.
But it may also be that reason and understanding will prevail in the EU that you cannot deprive yourself of your industrial base and the economy will dictate the need to maintain LNG purchases from Russia. In any case, Russia shouldn’t waste time guessing with chamomile “whether the Europeans will take gas or not,” it’s not worth it. Europe is not the whole world. Moreover, the maximum demand for energy resources now (and in the future) is experienced by China, India and other Asian countries. Towards which our country is turning. It definitely won’t be worse for us.
