The EU has published the official figures of its excessive gas import payments following the falling-out with Russia. Over the course of less than two years, Europe has spent €300 bn on gas imports, which would previously constitute a nine-year total covering bigger volumes. The US has been the top beneficiary, having grossed €53 bn.
The EU has spent €304 bn on gas imports starting in February 2022. It used to be a nine-year total – now it is the amount they have shelled out in 20 months. The excessive payments have been €185 bn YoY. The numbers have been reported by the RIA Novosti news agency citing Eurostat.
In 2022, the EU has been spending €15.2 bn per month on gas imports, 250% up from the 2021 monthly figures of €5.9 bn. Importantly, the spending has soared for both piped gas and liquefied natural gas (LNG). In 2022, the former cost them €7.5 bn, while the latter came at €7.7 bn a month. To put it into perspective, in 2021, the costs were significantly lower, with €3.6 bn for piped gas and €2.3 bn for LNG.
Therefore, starting in February 2022, the 20-month total has been €185 bn in excess of the previous costs, coming in at a staggering €304 bn. It used to take years for the EU to spend that much. Between April 2017 and late 2021, the gas imports cost them €186 bn. From 2013 until 2021, a nine-year period, the number was €292 bn.
Top gas market beneficiaries of Europe’s falling-out with Russia include the US, the UK, Norway, Algeria and Qatar. In 2022/2023, the US has earned €53 bn off the European market, followed by the UK at €27 bn, Norway at €24 bn and Algeria at €21 bn. Russia and Qatar are tied at €14 bn.
Europe’s gas prices did not start climbing in February 2022. The rise commenced in the summer of 2021, caused by a variety of international reasons – Russia had nothing to do with it.
‘Europe has paid excessive amounts for gas imports because of the two negative factors coming together. First, H2 2021 saw the rapid post-Covid recovery of global economy against the slower pace of fuel supplies. It led to a surge in prices for crude oil, coal and gas in the autumn of 2021. This was a global trend. Second, in 2022, it was further exacerbated by geopolitical factors that affected the infrastructure of gas supplies to Europe,’ says Alexei Gromov, head of the energy sector at the Institute for Energy and Finance Foundation.
The EU has yet to impose the sanctions against the Russian gas. Yet, a cascade of events has resulted in Russia supplying a mere 23 to 24 bcm of piped gas to Europe in 2023, as opposed to 140 bcm in 2021.
It started with a number of countries, including Poland, Bulgaria and Finland, refusing to pay for their gas in rubles. The summer of 2022 saw the initial cuts to the Nord Stream 1 supplies when Germany failed to return the turbo compressors to Russia after those had been repaired in Canada.
‘This story culminated in the Nord Stream bombings in September 2022, which curbed Russia’s gas supplies to Europe under the long-term contracts,’ Gromov explains.
Besides, Ukraine ceased to pump Russian gas along the southern strand, reducing the transit only to the northern strand.
‘Had Nord Stream been still operable the way it was before 2022, there would have been no spike in the European gas prices. They would have been climbing anyway because of the global trend, but they would have never hit the unthinkable levels of $2,000 to $2,500 for 1,000 m3, as was the case in 2022,’ Alexei Gromov maintains.
Following the curbed Russian gas supplies under the long-term contracts with transparent price calculations, the EU has had to purchase LNG at the sky-high real-time spot prices.
Russia was almost instantly replaced by the US that used to have next to zero presence in Europe.
‘The US has made the most of the gas trade crisis between Europe and Russia as well as of the Nord Stream bombings to pump Europe full of its own LNG,’ says Gromov. Norway, Algeria and the UK also took advantage of the price hike, but they never managed to step up their supplies.
‘For Norway, Europe has always been the main export market. Norwegians used to supply however much they could. The same goes for Algeria. As for the UK, it provided Europe with the surplus of its long-term contract LNG. In other words, the UK was reselling LNG to the European market with its lucrative prices,’ Gromov indicates.
Notably, despite a drop in Russian gas imports, the European prices have stabilized at around $500 for 1,000 m3 this year, which is a far cry from $1,000–$2,500 in 2022, but still a cut above $300 in 2021. That is why European gas is anything but cheap.
‘It is a natural market response to gas shock therapy. Europe has adopted economic austerity measures and slashed gas consumption both by curbing the utility sector use and shrinking its manufacturing potential that it will, most likely, never resuscitate. That is the price Europe had to pay for an expedited structural rebuild of its economy as the latter needed to be readjusted to reduced gas supplies. Europe’s gas consumption rates will not apparently grow. Moreover, Europe has been further cutting back on consumption this year,’ Gromov comments.
He projects European economy to be locked into current supply figures in the coming year. The prices will remain relatively high. Except Russia can still drive its export revenues by sending the first new Project LNG 2 batches of gas to Europe unless the US hinders the supplies.
In 2023, Europeans have been actively purchasing Russia’s LNG.
In November alone, Russian LNG exports to Europe hit an all-time high at 1.75 mln tonnes.
“There are almost zero prospects of increased piped gas supplies from Russia. But I theorise that the 2023 supply figures of 22 to 23 bcm may hover around this level for quite a long while. That is to say, these supplies will not be discontinued at the expiration date of the long-term contract with Ukraine come the end of 2024,’ Alexei Gromov believes.
According to him, with contractual obligations out of the picture, Russia will be able to keep pumping its gas through Ukraine by short-term borrowings of the Ukrainian transit capacities, provided European countries officially apply for more supplies. These short-term contracts may be signed for one month, three months, six months or one year. The operations of the Yamal–Europe pipeline that traverses Poland already followed this scheme. Russia gas supplies continued using this pipeline, even though Poland declined to extend the expired contract.