Europe still cannot survive without Russian LNG exports

CNN Business

Europe may be closer than ever to breaking its energy dependence on Moscow, but it still cannot survive without a Russian gas.

While Russia’s exports of coal, oil and gas via pipeline to Europe have fallen sharply Since Moscow invaded Ukraine Imports of Russian LNG, a frozen liquid natural gas that can be transported by sea tankers, increased in late February.

Russia’s liquefied natural gas (LNG) imports to Europe and the UK March and October this year were compared with the same period in 2021, according to consultancy Rystad Energy.

European imports of Russian LNG began to accelerate last fall as countries faced gas shortages. Russian imports doubled to 1.2 million tonnes through September, Rystad data showed.

Analysts told CNN Business the shipments could be worth between $1 billion and $2 billion.

Europe is racing to replenish its inventories ahead of winter this year as Russia slashes pipeline gas flows, including halting all shipments through the vital Nord Stream 1 pipeline in September. Global LNG supplies, including – ironically – from Russia, have proven to be an important alternative.

Most of Russia’s LNG imports come from Privately owned Novatek, the country’s The second largest producer of natural gas after Gazprom. Novatek operates the Yamal LNG project in the North West Arctic.

Russia is the fourth largest producer of LNG in the world and currently accounts for around 15% of Europe’s Rystad’s senior gas and LNG analyst Kaushal Ramesh believes total LNG supply will remain unchanged next year.

“Europe is eager to maintain these sales for as long as possible,” he told CNN Business.

But, like Russia’s pipeline gas, Europe’s demand for its LNG could make it vulnerable to sudden supply cuts from Moscow. The rise in imports also conflicts with the EU’s eventual ambition to completely cut energy ties to Russia and cut off the Kremlin’s war funding.

European sanctions have not yet targeted both forms of natural gas, as it is important to the energy security of some countries. This includes Germany, the EU’s largest economy.

“The EU needs LNG,” Anne-Sophie Corbeau, a global research scholar at the Center for 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] Revenues…so far this LNG has been on a low profile,” she added.

Most of the imports in September went to France, Spain and Belgium, although some of them were later reloaded and shipped to countries outside Europe, including China, Ramesh said.

According to Rystad, global LNG imports to Europe have risen 47% so far this year to 86 million tonnes, with most of it coming from the US and Qatar.

Restocking efforts in EU countries have been a resounding success. Data from European gas infrastructure shows storage levels across the group are at 95% of its capacity. This is well above the EU average of 88% over the past five years at this time of year.

In fact, the warehouses are so packed that dozens of ships loaded with LNG have been waiting near European ports in recent weeks, unable to find space to unload.

But a bigger challenge could come in the spring, as Europe tries to replenish its reserves with much-diminished Russian pipeline gas. According to research firm Wood Mackenzie, inflows to Europe are only 20% of prewar levels.

The European Union could face a gas shortage of 30 billion cubic meters next summer if Russia halts all remaining pipeline flows and China’s demand for LNG increases, the International Energy Agency (IEA) said in a report last week.

German gas operator Gascade is planning to build a terminal at one of its facilities in Lubmin, northeastern Germany, to receive LNG through its existing pipeline network.

That equates to nearly half of the natural gas needed to fill winter inventories to the same level as this year, the agency said.

“With the recent mild weather and lower gas prices, there is a danger of complacency in discussions around European gas supplies, but we are not out of the woods yet,” Fatih Birol, executive director of the IEA, said in the report. ” .

Felix Booth, head of LNG at data firm Vortexa, said the region will need all the LNG it can get to cover a possible shortage, including Russian cargoes.

“I expect Russian LNG to continue to play an important role in filling European storage through the winter of 2023,” he told CNN Business.

If Russia decides to weaponize its LNG exports, that would put the continent in a vulnerable position.

CGEP’s Corbeau said Moscow may decide to pressure Novatek to pay it in rubles — as state-owned Gazprom does for its pipeline gas — or sell it to some countries at a lower price for political support.

Others think Europe can respond to the situation by increasing imports from Qatar.

“You’ll see the market react to this dynamic, but [the impact] Probably still limited,” said Massimo Di Odoardo, vice president of natural 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 far less than what it typically earns from its pipeline gas exports.

European LNG imports from Russia (Wood Mackenzie forecasts 15 bcm for the full year) cannot make up for the expected 100 Russia’s pipeline gas imports fell by 1 billion cubic meters over the same period.

Unlike Gazprom’s pipeline exports, Novatek’s LNG sales do not include export duties for direct repatriation to the Russian state, Di Odoardo said.

The complex ownership structure of the Yamal LNG project will also make it difficult to export.

While Novatek owns more than half of the project, France’s TotalEnergies owns 20% and the two Chinese energy and investment companies share the rest.

“[Europe] would rather get what [it] Can take a lot of time before Russian pipeline gas and Russian LNG… [it] Sanctions on gas or LNG from Russia would be considered,” Ramesh said.

— James Frater and Alex Hardie contributed reporting.

Source link