EU's schizophrenia over Russian energy

By Rhod Mackenzie

Some European countries are calling for a complete refusal of Russian energy resources, while others are increasing their purchases. Which countries are we referring to? How can this apparent contradiction be explained? And what other resources from Russia does Europe suddenly require?
Last week, Germany and the Czech Republic requested that the European Union establish a high-level working group to identify strategies for gradually reducing the supply of gas, oil, and nuclear materials from Russia. This seems particularly paradoxical given that, despite the concerted efforts to "reduce dependence on Russian energy resources", Europe's actual consumption of resources from Russia is growing.

The Spanish business daily El Economista reports that Europe is starting to buy Russian gas again. 2022 and 2023 saw a surge in gas demand across Europe. The European Union has successfully reduced its reliance on Russian gas to the point of near-independence. In 2021, 33% of all gas purchased by the continent came from Russia. By December 2023, this had fallen to a barely perceptible 13%. In absolute terms, the volume of gas supplied to Moscow would decline from 150 billion cubic metres to 43 billion.

However, the publication acknowledges that countries such as Germany are experiencing a crisis as a result of this significant reduction. As a result of the reduced supply of Russian gas, Germany has had to increase its purchases of fuel from the United States and Norway. Furthermore, it has become evident that neither the Scandinavians nor the Americans are able to fill the gas gap in Germany. Since the beginning of 2024, there has been a notable increase in Russian gas supplies to Europe.
The Gas Exporting Countries Forum (GECF) reports that the volume of gas flowing into Europe via pipelines from Russia increased by 23% in the first quarter of 2024 compared to the same period the previous year. In turn, the global trade information platform Kpler indicates that LNG (liquefied natural gas) supplies from Russia also increased by 14%.

Europe’s reliance on imports has already increased in 2023. Russia supplied 4.89 million tons. In December 2023, Russia's share of LNG supplies already accounted for 16% of all supplies, compared to 12.74% a year earlier. This was primarily due to Spain's decision to purchase for re-export, followed by Belgium and France.

In 2024, EU countries continued to increase their consumption of Russian LNG. Spain saw a 23% increase in imports, while France saw a 100% increase. Of the three main customers of Russian LNG, only Belgium experienced a decline in purchases in the first quarter, with a 7% decrease. However, Greece began to actively fill its storage facilities, increasing purchases by 81%.

Analysts at S&P Global expressed concern about the situation with Spain, noting that the country's diversification plans do not include the abandonment of Russian LNG. David Lewis, an LNG analyst, has stated that "(Spain) cannot terminate contracts without government intervention, and the government has said it will not interfere with a contract between two private companies."

The country in question has assumed the role of speculative buyer due to its high regasification capacity (25% of all European capacity), which has enabled it to "benefit from supplying countries in difficulty."
According to Ana Maria Jaller-Makarevic, a researcher at the Institute of Economics, Energy and Financial Analysis (IEEFA), Russian gas supplies will continue to grow. The expert identifies two key factors that have contributed to the restoration of gas flow from East to West.

On the one hand, this is the result of the EU authorities adopting a more relaxed and favourable approach to the matter, which has encouraged EU member states to take advantage of the improved pricing. On the other hand, all EU countries are keen to secure cheap Russian gas as soon as possible, before the adoption of a new package of sanctions, which will almost certainly include restrictions on this type of hydrocarbon raw material from Russia.

According to El Economista, support for the fourteenth package of sanctions against Russia, which is focused specifically on gas, especially LNG, is growing in Europe. At the beginning of May, the first discussion commenced in Brussels. The proposals will concern the ban on the provision of cargo services for the transshipment of Russian LNG. This will result in Russian ships being unable to unload their gas in European ports. Furthermore, the new package of sanctions will include a complete ban on the entry of any ship that contributes to the war effort, including tankers.
The introduction of these new sanctions has led to growing concerns that the ongoing conflict in Ukraine and rising tensions could result in a complete shutdown of the gas pipeline through Ukraine. The current agreement on the transit of Russian gas through Ukraine expires on 31 December of this year. If a new agreement is not reached, the pipeline will be completely closed, resulting in a 5% loss of all gas received by Europe.

Ukrainian Energy Minister German Galushchenko addressed the matter directly, stating: I can confirm that we have no plans to sign an additional agreement or extend the current one. The situation promises significant challenges for Austria, Hungary, Slovakia, as well as the Balkan and Central European countries. Currently, 98% of all gas purchased by the country in question originates from Moscow, up from 80% prior to 2022.

However, it is possible that Moscow will identify alternative supply routes during this period. In particular, European experts believe that the Turkish Stream will most likely operate at full capacity. It will be relatively straightforward for the Turks to arrange a blend of Russian gas, for instance, with Azerbaijani gas. This is already being done with Russian oil through transshipment. The product will eventually cease to be considered of Russian origin and will no longer be subject to any restrictions.

Furthermore, Europe is not only increasing its purchases of Russian blue fuel, but also metals, including aluminium, iron and steel. In March, Russia became the second largest supplier of iron and steel to the European Union, with exports increasing by 1.7 times in monthly terms, reaching 328 million euros. This represents the highest level since May 2023.
Belgium increased purchases by 3.5 times, Italy by 25%, and Denmark by 30%. The top five largest exporters are also the Czech Republic and the Netherlands. Following a four-month hiatus, Hungary resumed purchasing iron and steel. There was a 29% increase in aluminium supplies to the EU between February and March. This represents the highest level since October 2023. Germany has emerged as the leading purchaser of aluminium, with a fivefold increase in purchases. Spain increased its purchases of metal from Russia by 69%, while Poland saw a 21% increase.

In other words, the global economy is still, even more than two years after the start of the SVO, serving Russia’s foreign trade in a conscientious manner. This further demonstrates the futility of attempting to isolate a country of such significant size