The EU wants to speed up the phase-out of Russian LNG

The European Commission wants to reduce purchases of liquefied natural gas from Russia as early as this year, despite the fact that Russia remains the second largest supplier of LNG to the continent after the United States. However, it is still difficult for Europeans to find a replacement for Russian volumes: lower gas prices have increased demand for it in Asia.

The European Commission intends to achieve a reduction in purchases of Russian LNG this year, European Commissioner for Energy Kadri Simson told Bloomberg. “In the EU, we are gradually increasing pressure on European players to reduce LNG purchases from Russia, and here again confidence in supplies from the United States is important,” she said after a meeting of the US-EU Energy Council, which was held on March 15 in Washington.

Russian LNG supplies to the EU in 2023, according to Deputy Prime Minister Alexander Novak, amounted to 15 million tons. This is approximately 46% of total Russian LNG exports. According to the European Commission, Russian LNG supplies in 2023 amounted to 17.8 billion cubic meters, which is 12.6% more than in 2022. At the same time, the share of Russian LNG in Europe’s total liquefied gas imports in 2023 was about 15%. Russia was the second largest supplier of LNG to Europe in 2023, with Qatar in third place with volumes of 15.5 billion cubic meters. The largest supplier, providing almost half of European LNG imports – 56 billion out of just over 120 billion cubic meters – in 2023 was the United States. Total gas supplies from the US to Europe have tripled over the past two years.

Judging by the published statement following the US-EU Council, replacing Russian gas with American gas in Europe remains the top priority. The statement said the council “will continue to collaborate on energy efficiency, electrification and other initiatives to reduce dependence on fossil fuels, in particular on fossil fuels from Russia, to limit Russia’s ability to finance a war of aggression against Ukraine.”

But unlike the situation in 2022, when the United States primarily sought to occupy a vacant niche in the European market and take advantage of extremely high gas prices, now the initiative to increase imports comes largely from the European Commission. The fact is that at the end of the year the contract for the transit of Russian gas through Ukraine expires, and Europe, primarily Austria and Slovakia, will potentially have to compensate for the loss of about 15 billion cubic meters per year of Russian pipeline gas. Officially, the European Commission claims that it does not intend to facilitate the continuation of gas purchases from Gazprom and EU countries have the opportunity to purchase LNG instead. However, so far no long-term contract for such supplies has been signed, and at the moment there are no new free volumes on the market. Moreover, the Joe Biden administration’s decision to suspend regulatory approvals for new LNG projects in the US is making it difficult for Europeans to plan for long-term contracts. Therefore, the European Commission is interested in lifting this ban, as well as assurances from Washington that Europe will be able to obtain at least the same amount of LNG in 2024 and 2025 as in 2023.

Stagnant gas demand in Europe and high reserves in underground gas storage facilities have already significantly reduced prices on the continent, and the cost of LNG in Asia is now higher. Energy Aspects estimates that LNG supplies to Europe could fall by 17 billion cubic meters in 2024 compared to last year due to higher demand in Asia. In addition, the consequences of the accident at the American Freeport LNG project and sanctions against the Russian Arctic LNG 2 are reducing the supply of gas on the market this year.

Yuri Barsukov