“eu’s Gas Security Of Supply: Challenges And Strategies” – By relying solely on Russian gas, European countries have largely ignored the obvious risks and consequences to security of supply. To prevent the current crisis from recurring in the future, Europe can hold a consolidated discussion on the implementation of various “Security of Supply 2.0” Regulations.
This view was expressed by Olga Bielkova, Director of Government and International Relations, in her speech at the 17th International Energy Forum.
“eu’s Gas Security Of Supply: Challenges And Strategies”
As an example, the Director of the Gas TSO of Ukraine includes minimum gas stock requirements, limits on gas purchased from a supplier at a particular country level and at European level, etc., among possible measures. stated. (more details in presentation).
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According to Ms. Bielkova, diversification of supply sources and delivery routes plays a key role in security of supply. While Europe’s main consumers remain unchanged, LNG terminals are becoming the main sources of gas with expansion potential. However, there are currently various bottlenecks in delivering LNG to EU countries; among these is the lack of onshore gas transport infrastructure.
“Reusing existing infrastructure where possible is key to resolving onshore infrastructure bottlenecks at minimal cost. In this context, there is great potential in the reverse mode of the Trans-Balkan pipeline, which could supply gas from Turkey and Greece LNG terminals and TANAP to Romania, Moldova, Ukraine, Hungary and potentially to the Baumgarten region via Slovakia,” said Olga Bielkova. , committed to eliminating all Russia’s fossil fuel imports by 2027. Progress has been made with sanctions on oil and coal. The notable exception is natural gas, which the EU has so far avoided limiting due to its growing dependence on Russia. After Russia weaponized its gas resources, gas imports through the pipeline dropped to four-fifths.
However, since the invasion of Ukraine, Russian exports of liquefied natural gas (LNG) to the EU have increased. The EU needs a coherent strategy for these LNG imports.
Our analysis shows that the EU can get by without Russian LNG. The expected impacts are not comparable to the impacts felt from Russian pipeline gas drying up in 2022. The regional impact will be most pronounced for the Iberian Peninsula, which has the highest share of Russian LNG in total gas supply. Meanwhile, the global LNG market is also tight, and we anticipate that Russia will find new buyers for cargoes that no longer enter Europe.
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We are discussing the options before the EU. Wait and see means any action is delayed until 2027, while soft sanctions can deter additional purchases but not break long-term contracts. Instead, we advocate an EU embargo on Russian LNG to reduce exposure to an untrustworthy and hostile organization and limit the scope of funding EU consumers provide to the Russian state. The embargo can only be designed to allow purchases in limited volumes and below market prices if coordinated through the EU Energy Platform. This may be accompanied by a ceiling price for Russian LNG cargoes using EU or G7 transit shipments, insurance or freight services.
The European Union has a goal of eliminating all fossil fuel imports from Russia by 2027. Rapid progress was made, helped by Russia’s decision to reduce gas pipeline exports to the EU. However, EU imports of liquefied natural gas from Russia have remained fairly stable. Discussions are ongoing about adding Russian LNG to the list of products banned from import into the EU (Table 1).
Russia has steadily cut off pipeline exports of natural gas to the EU through 2022, but not reduced LNG exports 1 Liquefied natural gas is natural gas that has been refrigerated in liquid form for transport on special vessels. was much smaller in volume. The value of LNG exports to the EU in the year after Russia’s invasion of Ukraine was €12 billion. Unless there is a definite change in the current situation, the EU may pay Russia an additional 9 billion Euros in the second year of the war (Demertzis and McWilliams, 2023).
Accordingly, in March 2023, the European Union announced that it had begun developing a mechanism that would allow member states to block LNG imports from Russia 2 Ewa Krukowska and John Ainger, ‘EU Aims to Give Members the Option to Block Russian LNG Imports’, Bloomberg, 28 March 2023 , https://www.bloomberg.com/news/articles/2023-03-28/eu-aims-to-give-members-option-to-block-russian-lng-imports. . This will be done by allowing EU countries to block Russian companies from booking LNG import infrastructure. 3 As part of the ongoing EU Gas Regulation revision at the time of writing; see https://www.europarl.europa.eu/legislative-train/theme-a-european-green-deal/file-revised-regulatory-framework-for-competitive-decarbonised-gas-markets-2. . This is a similar approach to the situation where Russian companies are prevented from reserving gas storage capacity in the EU and then deliberately left vacant. 4 You can find summary information about the sanctions at https://eu-solidarity-ukraine.ec.europa.eu/. EU-sanctions-against-Russia-following-the-invasion-of-Ukraine. . This offer is not yet finalized at the time of writing and it is unclear how it will affect non-Russian companies wishing to book import capacity for LNG 5 imports originating from Russia. At the national level, the Dutch and Spanish governments are planning to stop contract imports of Russian LNG and have asked importers not to sign additional contracts for Russian LNG. See. Çağan Koç and Diederik Baazil, ‘Netherlands Plans to End Russian LNG Imports, Minister Says’, Bloomberg, April 12, 2023, https://www.bloomberg.com/news/articles/2023-04-12/netherlands-plans- to-end-lng-imports-from-russia-minister-says and Stephen Stapczynski, Thomas Gualtieri and Anna Shiryaevskaya, ‘Spain Urges LNG Importers to Stay Away from Russian Supply’, Bloomberg, 24 March 2023, https://www .bloomberg .com/news/articles/2023-03-24/spain-urges-lng-importers-to-diversify-away-from-russian-supply. .
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In this context, we outline four different options available to the EU. In the first, “wait and see” method, the EU will continue to import LNG from Russia and wait to impose sanctions until the second half of this decade, when LNG markets are less tight. The second approach, ‘soft sanctions’, would require a partial effort to reduce Russian LNG imports without significantly affecting the long-term contracts that underpin much of the EU-Russia LNG trade. Under a complete ‘EU embargo’ scenario, sanctions on Russian LNG will force companies to declare force majeure on long-term contracts and no Russian LNG will enter the EU.
The fourth approach, the ‘EU embargo with the EU Energy Platform proposal’, will break up the current trade structure of the bloc and return to the table as the only party to be negotiated. This can be done through the new EU Energy Platform for joint purchasing of gas 6 See https://energy.ec.europa.eu/topics/energy-security/eu-energy-platform_en. It may offer to purchase limited quantities of Russian LNG, which will be phased out over time depending on the situation in Ukraine. This approach could be complemented by a cap on imports of Russian LNG based on EU or G7 services, including transit shipments, ships and transport insurance.
To evaluate the options, we begin by providing an overview of the growing role LNG plays in Europe’s gas mix (including Russia). We assess the impact on the EU of ending LNG imports from Russia, by quantitatively assessing the impact on gas balances and storage to determine whether the EU can manage without Russian LNG. In investigating the effects on Russia, we consider the nature of LNG exports from Russia to the EU, with long-term contracts and the Yamal liquefaction plant owned by multinational companies. Finally, we discuss the effects of the options available to the EU on global LNG markets and Russia.
In addition to the decrease in domestic demand, increasing LNG imports prevented the European Union from running out of natural gas in 2022, when the energy crisis peaked. Together, these measures have enabled a fairly smooth transition away from Russia, historically the EU’s largest supplier. While Russia’s pipeline exports accounted for around 40 percent of the EU’s total gas supply before Ukraine’s invasion, today this proportion is less than 10 percent. In the year between 1 April 2022 and 31 March 2023, the EU imported 950 terawatt hours (TWh) less of Russian pipeline gas than in the previous 12-month period. The EU closed the gap by increasing imports from other sources and reducing demand (Figure 1).
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In 2022, the EU’s LNG imports increased by 66 percent compared to the previous year. While the largest part of this growth comes from the USA, Russia is now the second largest LNG provider in the EU, although it is far behind the USA. In the first quarter of 2023, Russia’s LNG exports to the EU amounted to 51 TWh, accounting for 16 percent of LNG supply and 7 percent of total natural gas imports.
The largest share of Russian LNG is imported via Spanish ports, while Belgian, Dutch and French ports account for most of the remaining volumes. Due to the region’s relatively high dependence on LNG and the limited connections between the Peninsula and the wider European gas market, we consider the Iberian Peninsula separately from the rest of the EU in our subsequent analyses. In the first quarter of 2023, the Iberian Peninsula imported 17 TWh of Russian LNG to Spain and Portugal, that is, a quarter of the total LNG supply and 20 percent of the total natural gas imports. AB graph in Figure 2