Europe may be closer than ever to breaking its energy dependency on Moscow, but it still cannot live without some kind of Russian natural gas.
While Russian exports of coal, oil and natural gas, which are transported to Europe via pipelines, have fallen sharply since Moscow invaded Ukraine In late February, imports of Russian LNG — a refrigerated, liquid form of gas that can be transported by sea tankers — surged.
Meanwhile, imports of Russian liquefied natural gas (LNG) to Europe and the UK rose by almost 20% March and October this year compared to the same period in 2021, according to consultancy Rystad Energy.
European imports of Russian LNG started to accelerate last fall as countries faced gas shortages. Russian imports doubled to 1.2 million tons in the year to September, Rystad data shows.
Those shipments could be worth between $1 billion and $2 billion, analysts told CNN Business.
Europe has been scrambling to stock up ahead of winter this year as Russia drastically reduced its pipeline gas flows, including halting all supplies through the vital Nord Stream 1 pipeline in September. Global shipments of LNG, including, ironically, from Russia, have emerged as a vital alternative.
Most of Russia’s LNG imports come from Private property Novatek, of the country second largest natural gas producer after Gazprom. Novatek operates the Yamal LNG project in the northwestern Arctic.
Russia, the world’s fourth largest LNG producer, currently accounts for about 15% of Europe’s Total supply of LNG, a proportion that Kaushal Ramesh, senior analyst for gas and LNG at Rystad, believes will remain the same next year.
“Europe is keen to maintain these levels for as long as possible,” he told CNN Business.
But as with Russia’s pipeline gas, Europe’s appetite for its LNG could leave it vulnerable to sudden supply cuts by Moscow. The surge in imports also conflicts with the bloc’s ultimate ambition to completely sever ties with Russian energy and choke off funding for the Kremlin’s war effort.
Because of their importance for the energy security of some countries, European sanctions have not yet targeted both forms of natural gas. This includes Germany, the bloc’s largest economy.
“The EU needs LNG,” Anne-Sophie Corbeau, global research scientist at the Center on Global Energy Policy (CGEP), told CNN Business.
“So it’s convenient for them to turn a blind eye [Russian] LNG while Russia continues to enjoy [the] Revenue…so far this LNG has mostly stayed under the radar,” she added.
Most imports in September went to France, Spain and Belgium, Ramesh said, although some of those cargoes were then transhipped and shipped to countries outside Europe, including China.
According to Rystad data, global LNG imports to Europe so far this year are up 47% to 86 million tonnes, with the majority being shipped from the United States and Qatar.
Efforts to top up by EU countries have been a complete success. Storage capacities across the block are at 95% of capacity, data from Gas Infrastructure Europe shows. That’s well above the 88% the bloc has averaged over the past five years up to this point in the year.
In fact, the warehouses are so full that dozens of LNG-loaded ships have been waiting outside Europe’s ports for the past few weeks, unable to find a place to unload their cargo.
A bigger challenge could arise in the spring, however, when Europe tries to replenish its supplies with a sharply reduced supply of Russian pipeline gas. Flows to Europe are now only 20% of their pre-war levels, according to research firm Wood Mackenzie.
The International Energy Agency (IEA) said in a report last week that the bloc faces a possible shortage of 30 billion cubic meters of gas next summer if Russia halts all remaining pipeline flows and Chinese demand for LNG surges.
That would account for nearly half the gas needed to fill winter stocks to the same level as this year, the agency said.
“With recent mild weather and lower gas prices, there is a risk that complacency will creep into Europe’s gas supply talks, but we’re far from over the hill,” said Fatih Birol, Executive Director of the IEA, in the report.
The region will need all the LNG it can get to make up for any potential shortage, including Russian cargoes, says Felix Booth, head of LNG at data firm Vortexa.
“I expect that Russian LNG will continue to play an important role in filling European storage facilities through the winter of 2023,” he told CNN Business.
That puts the continent in a vulnerable position if Russia decides to arm its LNG exports.
Moscow could decide to pressure Novatek to demand payments in rubles — like state-owned Gazprom has done for its pipeline gas — or sell it to some countries at lower prices to gain political favor, Corbeau said the CGEP.
Others think Europe could handle this scenario by boosting imports from Qatar.
“You would see the market respond to that momentum, but [the impact] may remain limited,” said Massimo Di Odoardo, vice president of gas and LNG research at Wood Mackenzie.
It’s unclear how much revenue Russia gets from its LNG sales in Europe, but it’s almost certainly a lot less than the amount it normally gets for its pipeline gas exports.
A surge in European LNG imports from Russia – which Wood Mackenzie predicts will reach 15 billion cubic meters year-round – cannot offset the expected 100 billion cubic meters decrease in Russian pipeline gas imports over the same period.
And unlike Gazprom’s pipeline exports, Novatek’s LNG sales do not include export tariffs, which are repatriated directly to the Russian state, Di Odoardo said.
The complex ownership structure of the Yamal LNG project would also make it difficult to sanction its exports.
While Novatek owns just over half of the project, France’s TotalEnergies owns a 20% stake, while two Chinese energy and investment companies share the rest.
“[Europe] would rather take something [it] can in terms of russian pipeline gas and russian LNG… it would take some before [it] would consider sanctioning gas or LNG from Russia,” Ramesh said.
– James Frater and Alex Hardie contributed to the coverage.