Will the EU heed calls to ban Russian gas?

The calls to abandon Russian LNG are increasing in Europe, as it is curently almost exclusively purchased by European consumers. A vote on this issue is scheduled for April. This raises questions about why Russia began selling its LNG to Europe and why Europeans have been buying it. It is unclear who will suffer more if the ban is introduced.
The European Commissioner for Energy, Kadri Simson, is urging EU countries to vote in April to stop purchasing Russian LNG. “In the EU, we are gradually increasing pressure on European players to reduce LNG purchases from Russia. Confidence in supplies from the US is important,” said Simson after a meeting of the US-EU Energy Council in Washington.

In 2023, the EU reduced imports of pipeline gas from Russia by five times. However, it significantly increased purchases of Russian liquefied natural gas, up to 15 million tons, which is 38% higher than the 2021 level.

Why has Russia increased LNG supplies to Europe while pipeline gas, on the other hand, has substantially been reduced in this market? Firstly, there are no sanctions against gas from Russia. Pipeline supplies have decreased due to delivery problems, primarily caused by the Nord Stream explosion and the closing of the Yamal-Europe pipeline. Secondly, Russian LNG is sent to areas where prices are higher.
“Supplying LNG to Europe has been profitable for sellers in recent years because prices there are higher than in Asia. Even if prices in Europe and Asia are the same, it is still more profitable to ship LNG to Europe due to lower transportation costs,” explains Igor Yushkov, an expert at the Russian Financial University and the National Energy Security Fund.

Sergei Kaufman, an analyst at Finam Financial Group, notes that exporting to the EU involves the shortest transportation distance. Therefore, exports to Europe are slightly more profitable than exports to the Asia-Pacific region.
We are mainly discussing the supply of Novatek’s Yamal LNG plant to Europe. Initially, Novatek planned to send its LNG to Asian premium markets, where prices were higher at the time. There was no mention of Europe. Allowing Russian LNG to compete with Gazprom’s Russian pipeline gas in Europe was a peculiar decision at the time. As the Russian budget gains income from pipeline gas exports, the state does not receive any revenue from LNG exports due to tax breaks granted to LNG projects in Russia for 12 years. Previously, Novatek would not have been permitted to take away Gazprom’s share in the European market, even though there were no explicit prohibitions.

However, the situation has changed significantly since 2022. With the decrease in Gazprom’s gas flow, Europeans have started to accept any LNG, including Russian. Russian LNG has proven to be in demand. The Yamal LNG plant has a capacity of 17.4 million tons of LNG per year and produces about 20 million tons per year. In addition, Novatek has 15 ice-class gas carriers at its disposal to send LNG to Europe, which is faster and cheaper than sending it to China.
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Will the EU heed calls to ban Russian gas?

The calls to abandon Russian LNG are increasing in Europe, as it is curently almost exclusively purchased by European consumers. A vote on this issue is…