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As Europe approaches its December 5 cut-off date for Russian oil imports, it is still struggling to wean itself off all Russian energy. Reliance on Russian gas has turned out to be a bigger problem than initially expected, with Europe reluctant to impose sanctions on the natural gas product for fear of shortages and rising prices.
While European imports of Russian coal and oil have fallen significantly since Russia invaded Ukraine earlier this year, the region remains heavily reliant on Russian LNG. Exports of liquefied natural gas rose by around 20 percent between March and October compared to the same period in 2021, according to Ristad Energi. Russian LNG shipments in the year to September totaled 1.2 million tonnes, worth between $1 billion and $2 billion.
Europe is scrambling to replenish its stocks in time for winter, when demand will rise. In fact, EU storage is thought to be at around 95 capacity, with many LNG-carrying ships stuck in European ports waiting to find space to offload LNG cargoes.
But since Russia cut gas supplies from Nord Stream 1, many countries have had to rely on Russian LNG, provided by private firm Novatek. This is not surprising given that Russia is the world’s fourth largest producer of LNG, meaning that many countries around the world have begun to rely on it for energy supplies in recent years. It provides about 15 percent of Europe’s LNG, an amount that is not easily replaced by other supplies in a short period of time. Analysts of Ristad Energi believe that it is unlikely that this figure will decrease in the coming year.
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Anne-Sophie Corbeau, global research scientist at the Center for Global Energy Policy (CGEP), explained: “The EU needs LNG,” adding: “That’s why it’s convenient for them to turn a blind eye to [Russian] LNG, while Russia continues to enjoy [the] revenues… until now this LNG has flown largely under the radar.”
But as the US imposes sanctions on Russian energy and the EU follows suit, continued reliance on Russian gas could prove problematic as it is vulnerable to any cuts from Russia. It also undermines the region’s efforts to condemn Russia’s ongoing conflict with Ukraine. Oil in Europe’s pipelines from Russia is about 20 percent of what it was before the invasion, meaning it will be more difficult when the region needs to replenish its supplies in 2023. Therefore, several European powers are looking to other gas-rich countries to fill the gap.
The EU’s “REPoverEU” plan, announced in March, seeks to diversify gas suppliers in the region and increase the transition to renewable energy sources. The EU has identified Norway, the second largest regional gas producer after Russia, as a potential supplier to Europe. Norway is steadily increasing production to support the EU’s transition from Russian fossil fuels by 2027.
Some countries are already using other sources of gas, with little reliance on Russia. Great Britain, for example, does not rely on Russian gas, and the energy company Centrica has signed an agreement with the Norwegian company Equinor for additional gas deliveries over the next three winters. Cyprus has other gas suppliers, independent of Russia. However, France relies on Russia for 24 percent of its imported gas, Germany for 46 percent, and Hungary for more gas than it used all year. So, while some countries find it relatively easy to move away from Russia, others are worried about their energy security if they cut off all energy ties with Russia.
The US and the Middle East have played a vital role in filling the gap, supplying more LNG to Europe. But fears of shortages remain, sending gas prices skyrocketing through 2022. Germany is now exploring the potential to build five new LNG terminals to ensure that incoming cargo ships are not turned away for lack of slots to unload their cargo.
While several European countries race to shore up their energy security by securing new gas suppliers and investing in infrastructure, not everyone agrees. For example, Spain and Germany want to establish a new gas connection through the Pyrenees, but France opposes the initiative. Instead, France favors new LNG terminals, which can be made to float, which it believes would be faster and cheaper to build than a new pipeline.
Try as it might, Europe seems unable to reduce its reliance on Russian LNG. Its move away from Russian crude means little if the region continues to pump funds into Russia through LNG imports. And despite efforts by Norway, the US and other countries around the world to supply Europe with much-needed gas, this is only a short-term solution. Greater investment in Europe’s natural gas infrastructure and renewable energy sector could support its long-term shift away from Russian energy, but it is likely to remain heavily reliant on Russia for energy in the short term.
By Felicity Bradstock for Oilprice.com
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