The EU Council and the European Parliament agreed on restrictions for Russian gas suppliers

The EU Council and the European Parliament have previously agreed on large-scale restrictions for Russian gas suppliers, which may primarily affect Gazprom and NOVATEK. With its adoption, EU countries will be able at the national level to prohibit suppliers from the Russian Federation from accessing gas transportation infrastructure, including LNG terminals. This means that European companies will have the option to break long-term contracts with Russian suppliers, minimizing the risk of paying multi-billion-dollar penalties. Although experts believe that none of the existing recipients of Russian gas wants to give it up, the existence of such an opportunity could become a reason for political pressure.

The EU Council and the European Parliament reached a preliminary political agreement on 8 December establishing a new gas regulation aimed at decarbonising gas and hydrogen. Among other things, the new rules contain a clause on energy security, allowing EU countries at the national level to introduce a ban on the reservation of infrastructure capacities, that is, both LNG terminals and pipelines, for gas exporters from Russia and Belarus.

“The regulation will contain provisions allowing Member States to adopt restrictions on the supply of natural gas, including LNG from the Russian Federation or Belarus,” the EU Council said in a statement. The purpose of the provisions is “to protect the fundamental security interests of Member States or the EU.”

This means that EU countries, if the norm is adopted in the future, will be able to unilaterally suspend long-term contracts with Gazprom for the supply of pipeline gas and with NOVATEK for the supply of LNG, declaring force majeure in connection with decisions of the governments of their countries. The approach would likely allow them to avoid paying fines. Gazprom used the same strategy in the situation of transferring payments for Russian gas into rubles in accordance with the decree of the President of the Russian Federation in May 2022: the company stopped supplies to those European buyers who did not agree to a change in the payment scheme.

Currently in the EU there are no legislative restrictions on the purchase of Russian gas, although European Commission officials are calling on countries to refuse these supplies, finding alternative sources, and not to enter into new long-term contracts with the Russian Federation. In theory, the new regulation could provide grounds for increasing political pressure on countries that continue to purchase Russian gas.

Gazprom supplies gas through Ukraine to Slovakia, Austria and Italy, as well as through Turkish Stream to Macedonia, Croatia, Hungary, Greece, Serbia and Bosnia. Last year, Gazprom’s supplies to the EU fell by 56%, to 63.8 billion cubic meters; this year exports may fall to 29 billion cubic meters. Gazprom’s share of EU gas consumption could drop to about 8.5% from 34% in 2021.

So far, only Great Britain, Poland and the Baltic countries have refused Russian LNG. In January-November, Spain, according to Kpler, purchased 4.43 million tons from Russia, Belgium – 4.3 million tons, France – 3 million tons, and the Netherlands, Greece, Finland, and Sweden also continue purchasing. According to the European Commission, imports of Russian gas (including LNG) in 2023 will amount to 40–45 billion cubic meters, compared to 80 billion cubic meters in 2022 and 155 billion cubic meters in 2021.

Large importers of Russian LNG – TotalEnergies and Naturgy – stated that they could not terminate long-term contracts with NOVATEK. “We have volumes of 4 million tons under long-term contracts to which we are committed. But we strictly buy only these volumes,” said the head of TotalEnergies, Patrick Pouyanné, in February. Although the volumes contracted with TotalEnergies and Naturgy go primarily to France and Spain respectively on DES terms, the mere import ban of the respective countries should not necessarily mean the cancellation of the contracts, since buyers can redirect the gas to other markets.

As Sergei Kondratyev from the Institute of Energy and Finance notes, restrictions are introduced only for Russia and Belarus, that is, they are clearly discriminatory. The European Commission, justifying this measure, appeals to “ensuring security”, but also indicates that such restrictions should not contradict the international obligations of the EU, and they can be introduced at the national level only after studying the risks, including for other members of the bloc. Thus, the expert believes, now the risks that EU countries will use the new regulation to refuse supplies from Russia are minimal. “Those who wanted to refuse to import Russian gas have already done so; those who continue to import are not obligated by this document to refuse,” says Sergei Kondratyev. He notes that formally this document gives more freedom to transit countries – Bulgaria and Slovakia – to limit or suspend the transit of Russian gas, but recipient countries are likely to be against such measures.

However, in October Bulgaria already sharply raised the tariff for gas transportation via the Turkish Stream, contrary to its obligations and the protests of Serbia and Hungary; there has been no reaction from the European Commission to this yet.

Tatiana Dyatel