“The question is whether Russian gas will go to the EU at all”

About whether Russia has the opportunity to partially restore gas exports to the EU and what are the prospects for gas in principle in the European energy balance, Kommersant was told by the former co-chairman of the Russia-EU gas advisory council, professor, honored researcher at the Oxford Institute for Energy Studies Jonathan Stern.

— In your opinion, is it possible for Russian gas exports to Europe to increase from current levels, or is it impossible?

— We will never return to the times when imports from Russia reached 100, 150 or 200 billion cubic meters. The question is whether Russian gas will reach the EU countries at all – at least through pipelines, since LNG is perhaps a slightly different story. As far as pipeline supplies are concerned, they seem to be able to remain at their current level of 20-25 billion cubic meters per year for the time being, unless they stop completely, which, of course, is the goal of EU policy.

— But European companies signed very few long-term LNG contracts during the year, and this volume is not enough to replace Russian gas.

– In general, European buyers cannot sign long-term contracts for 15 years or more, because otherwise they will not be able to meet targets to reduce greenhouse gas emissions.

But in any case, companies don’t worry too much about it, because they have the option to buy spot LNG, even though they have to pay for it. In other words, they take on price risk, but from their point of view, they do not take on the risk of commitment to purchase certain volumes.

In essence, LNG provides a choice. If you have receiving terminals, and they are being built in Europe at a record rate, you can still get LNG if you pay enough, and the only question is how much you have to pay. So there is a risk, but it is a price risk, not a volume risk.

— And such a risk is acceptable for European companies in the long term?

“The theory is that in the 2030s, natural gas consumption in Europe will stop, as it is necessary to meet emission targets. If the theory is wrong, then some problems may arise.

However, as we can see, all over the world, especially in North America, new LNG projects are being built very quickly. We may have a problem getting through next winter, but it looks like everything will be fine. Then, in 2026-2027, a huge amount of new LNG will enter the market, and after 2030 gas consumption in Europe will start to decline due to emission reduction targets.

— What is your medium-term forecast for consumption in Europe?

— In 2022, consumption in Europe decreased by 13-15%. With current gas prices – still high, but no longer the same as in 2022 – we expect it to recover perhaps slightly, but not much. I think that consumption this year will be about the same as in 2022: there is the possibility of a slight increase, but there is also a possibility of a fall.

Naturally, if consumption goes down, prices will go down as well. The outlook for European gas and LNG consumers is far less troubling now than it was a year ago. The critical point, in fact, is that we need all existing sources of supply to remain available. This is the problem with moving away from Russian gas: we need all other sources to be available.

– Reducing gas consumption and high prices, at least for now – how will this affect the energy-intensive industry in Europe? For example, in the German chemical industry?

“We see chemical plants closing all over Europe. BASF closed the Ludwigshafen plant and simply relocated it to the Middle East. So the chemical production in Europe will be curtailed, and, probably, at current gas prices, this will happen very quickly. Because you can open a factory in the US, Middle East at a much lower cost.

Europe will become an importer, not a producer of chemical goods. It is already reducing and will continue to reduce the output of all energy-intensive goods – chemicals, steel – which will be produced at lower prices in other countries and imported.

Given all this, is it possible that Europeans will completely stop buying Russian gas by the mid-2020s?

– Yes. Now Russian gas is unacceptable, this is no longer an energy problem, but a political one. It’s really already a question of what to do with some of the existing long-term contracts and whether it is possible for Russian gas to continue to flow to Europe through Turkey or even through Ukraine. But the volumes in any case will be very small.

If there is some kind of political solution to the crisis, which I do not see prospects at the moment, then we may need to re-discuss the issue. But, as I said, the time when we imported 100 billion cubic meters or more from Russia is over. Even if Russian gas returns, such volumes will never be discussed again.

— Given that the transit contract between Russia and Ukraine will expire at the end of 2024, do you expect supplies along the route to completely stop?

– I think it is likely, unless there is some kind of solution to the conflict. If it is, then it is possible – only possible – that supplies will continue. If not, then definitely not.

— Do you consider it possible to use the Nord Stream 2 pipeline, which was not directly affected by the explosion in September 2022?

“This is a German decision, and this is a political decision. Nord Stream is a political symbol of Russian gas, so the situation cannot change unless there is some kind of solution to the military conflict, or at least stabilization. And even then it will be extremely difficult.

– Do you consider the plans adopted by the EU countries to phase out gas achievable within the specified time frame? Could there be a turn in EU energy policy towards a more moderate approach?

— I would say that at the moment it does not seem that the goals set for 2030 have been achieved. But I think that one should not attach too much importance to specific goals. In Europe, the general direction of energy policy has been established and, although we may not reach quantitative targets, the overall trend will remain unchanged. There is a political desire to phase out gas.

Will this strategy succeed? Well, maybe not as fast as we expect, but I don’t think the trend will reverse. In other words, I don’t think governments are suddenly going to say, “Oh, this is all too expensive and complicated, let’s do something else.” The move towards phasing out fossil fuels will continue, just the speed is unclear. Will gas consumption (not only from Russia) in Europe decrease by 2030 – yes, it will decrease. How much, we don’t know yet.

Interviewed by Yuri Barsukov