If anything, Europe has become more dependent on the Russian LNG YoY, with France ramping up supplies more than any other country despite its president clamouring for the EU to support Ukraine against Russia. Belgium and Spain have completed the top three buyers. What is it that makes Europeans purchase increasing amounts of the Russian LNG?
As President Emmanuel Macron ‘loudly positions himself as one of Ukraine’s staunchest defenders’ and Russia’s fiercest rivals, France has stepped up its liquefied natural gas (LNG) purchases from Russia more than anyone in Europe, according to the data analysed by the Centre for Research on Energy and Clean Air (CREA) think tank for POLITICO.
In Q1 2024, the country paid over €600 mln for the Russian gas supplies, ‘leading to calls for France to clamp down on its rising purchases’, per POLITICO. Meanwhile, France is adamant that the gas is needed for European households and that the long-term agreement with Russia is hard to pull out of without legal payback.
The French ministry of economy claims a spike in Russian LNG supplies had to do with the rampant strikes that ‘strongly disrupted normal flows last year’. Besides, France further uses its purchases to supply other countries, including Italy.
According to the S&P Global data, the EU’s dependence on the Russian gas has increased year-on-year. In 2024, Russia has supplied 4.89 mln tonnes of LNG to Europe, amounting to more than 16% of total supplies (33.65 mln tonnes) vs 12.74% over the first four months of 2023.
Most of the Russian supplies have been split among France, Spain and Belgium. For Spain, the Russian LNG supplies make up 32% of their total imports clocking in at 1.56 tonnes. For Belgium and France, these figures are 49% and 27%, respectively.
Spain claims that the government has no power to terminate private businesses’ contracts. Between October 2023 and March 2024, the Russian LNG supplies to Spain were 2.57 mln tonnes vs. 2.28 mln exactly a year ago, per S&P Global.
‘Whether or not President Macron likes Russia, LNG imports are not banned by the EU or by any national government. That is why private businesses have a right to import LNG from Russia. The companies explain it by their need to supply energy sources to the consumers. The alternatives, they argue, will be pricier, which is true,’ says Igor Yushkov, an expert with the Financial University and Russia’s National Energy Security Fund.
For France, Russian LNG supplies go back decades. France’s Total Energy still owns a stake at Novatek and Yamal LNG. Besides, it has an active supply contract with the latter. Notably, it is Yamal LNG that is mostly responsible for Russia’s gas supplies to Europe.
Why are France, Belgium and Spain the leading destinations for the Russian gas? Above all, these are the nearest coastal countries.
‘Not all of the Russian LNG arriving at French, Belgian and Spanish ports gets regasified to further hit the European market. Some of the gas is loaded onto the non-ice class tankers that end up heading for destinations around the world, including China and India,’ Igor Yushkov notes.
Why is it the case? The reason is that Yamal’s LNG is shipped by Arc7 ice-class tankers, of which there are only 15 globally. Those were all purpose-built for Yamal LNG. European ports are used for ship-to-ship transfers so that the ice-class tanker can make a faster return for a new load, thus increasing the number of batches shipped, the expert explains.
Secondly, even when the Russian LNG is regasified in Belgian, French and Spanish ports, it is not necessarily meant for domestic consumption. Part of it can be pumped via the continental pipelines to reach other countries.
‘For example, Belgium receives large batches of both the Russian and non-Russian LNG, only to reroute much of it to Germany, once regasified. That is why German is one of the buyers of the Russian-sourced LNG as it has replaced part of the Russian pipeline gas with the Russian LNG. But since it originally arrives in Belgium, the EU stats count it as Belgian-bought,’ Yushkov comments.
Another reason the EU countries are ramping up Russian LNG supplies is that the US LNG is being increasingly rerouted to Asian markets, thereby making room for the Russian supplies, according to the expert.
The same is true of Spain. It has never been directly reached by the Russian pipelines and opted for LNG long ago. The American LNG being shipped to Asia has an immediate effect on the Spanish market. To make matters worse, Spain is suffering regular disruptions in the Algerian pipeline gas supplies.
Finally, from the economy standpoint, Russian LNG purchases is convenient and profitable to both parties.
‘It is more beneficial for Yamal LNG to supply gas to Europe when the Asian prices are almost on par with the European ones since the routes are shorter and the tankers are making more trips back and forth.
‘Secondly, roughly between November and June, the eastern portion of the Northern Sea Route almost sits dormant. Therefore, any shipments to Asia would anyway involve Europe, the Suez Canal and the Red Sea. So, it is easier sold to Europe, which stands to benefit from it. The EU can negotiate discounts from the Russian suppliers, for they have two other alternatives to choose from: the American and the Qatari LNG,’ says Igor Yushkov.
Should the EU introduce the long-buzzed-about Russian LNG ban, it will create additional costs for both parties. ‘If European ports cannot be used even for ship-to-ship transfers, it is going to take a heavy toll on Yamal LNG. Apparently, it will lead to bulk ship-to-ship transfers in the open sea,’ the expert suggests.
With the Russian LNG off the market, the Europeans will find themselves competing with the Asian customers for the same amount of the US or the Qatari LNG. This will prompt a gas price hike in the European market.
‘It will severely affect the Europeans as the market has only recently stabilised at around $300 per 1000 cubic metres. If the prices soar to $500 or $600, it will damage the EU’s economy through surging inflation rates and further de-industrialisation, which will lead to a further drop in gas consumption,’ the expert maintains.
Yushkov, however, doubts the EU sanctioning gas supplies as part of the upcoming package, but the odds will grow as the next heating season rolls around. ‘If the summer is not going to be scorching hot, there will be a lower demand for cooling and Europe’s consumption rates will be relatively low. If this is the case, the prices are not going to soar and more gas is going to be stored in the underground facilities. Then, in the autumn Europe may end up certain that the gas market is steady and balanced out and that cold-turkeying Russian LNG supplies will have no effect on their economies,’ the expert speculates.
Another factor deterring a ban on the Russian imports may well be the fact that shunning Yamal LNG gas supplies will not pose a challenge to the Russian government. These sanctions are not going to affect the budget revenues since there is no LNG export duty and Yamal LNG is not subject to heavy taxation, according to Igor Yushkov.