Europe is set to continue to rely on Russian LNG in short term

More than two years after Russia launched its invasion on Ukraine, natural gas pipeline imports from the country to Europe dropped significantly below pre-crisis levels. Pipeline imports from the country to the EU was down 84% in 2023, compared with 2021, according to a recent report from S&P Global Commodity Insights.

Russia remains an important supplier of LNG to the Continent and market participants do not see a complete end to that, in the short term at least.

"If Europe is still importing LNG from Russia, it is because there is a need," a France-based gas trader said. "With our other main suppliers, such as Norway, operating at maximum capacity, it will be hard to completely stop the flow of Russian LNG. We are still not completely out of the crisis."

Correspondingly, Europe's reliance on Russian LNG imports increased on the year. In 2024 so far, Russia has supplied 4.89 million mt of LNG to Europe, or more than 16% of the Continent's total LNG supply of 33.65 million mt, in comparison with 12.74% for the first four months of 2023, data from S&P Global showed April 9.

France, Spain and Belgium were the European countries to take in most of the volumes in 2024 so far, while Russian LNG sendout to Spain represented 32% of the 1.56 million mt of LNG imported into the country in 2024 so far.

LNG imports were higher for Belgium but lower for France, of which Russian LNG imports represented 49% and 27% of the total imports, respectively.

"Spain has no plans to diversify away from Russian LNG," David Lewis, an LNG analyst with S&P Global said. "[Spain] cannot void contracts without the government intervening and the government said it won't intervene in the contract between two private companies."

Lewis said until Russian fuel imports come under a proposed EU-wide ban, set for 2027, Spain could continue to take Russian LNG, pointing out the country's efforts to increase imports amid restrictions at the Suez Canal.

"[Spain] has benefited from these distressed cargoes looking to find homes in Europe," Lewis added.

Between October 2023 and March 2024, Russian LNG deliveries into Spain amounted to 2.57 million mt, compared with 2.28 million mt for the same period a year earlier, data from S&P Global showed April 9.

In France however, market participants argued the market still needed to import Russian LNG to subside its supply needs and saw the complete phase out the resource as an unlikely scenario in the short term.

Market sentiment also highlighted the need for European offtakers to cultivate new trading relationships with other emerging LNG providers.

"We can envision a world without [Russian LNG] in the long term," the France-based trader said.

Political unanimity

European policymakers have grappled with the prospect of a complete cessation in both Russian pipeline and LNG since the invasion of Ukraine in February 2022.

Despite this, both pipeline gas continues to flow to the Continent via Ukraine, while the prevalence of existing take-or-pay LNG contracts with Russian suppliers continue to represent a stumbling block in its efforts to ban Russian imports.

In February, Austria's energy ministry acknowledged this, citing the landlocked country's continued reliance on Russian pipeline gas constituted "a major economic and security risk."

While it sought to establish a plan to reduce such a dependence, questions around the economic impact of such a decision remain unclear.

Likewise, in a March 1 visit to Azerbaijan, the European Commissioner for Energy Kadri Simson acknowledged the EU's continued need to work towards diversification away from Russian gas, noting that in 2023 the EU imported some 43 Bcm of Russian gas.

However, Simson stated the implementation of sanctions on Russian LNG was "an act of democracy," reiterating the plurality of EU policymaking.

"To introduce sanctions in the EU, we need unanimity. Everyone needs to back these proposals. This is why we still don't have sanctions in place against Russian gas. Our sanctions must always send a clear message to those who deserve them, and must harm their economy more than ours," Simson said.

The European Parliament is set to hold a vote on banning Russian gas at national level on April 11.

Supply alternatives

Sources said that in a scenario where Russian LNG to Europe would be completely phased out, the Continent would continue to rely on the US and Qatar as well as other emerging LNG markets for more imports.

In France, sources said the US and Qatar would remain the main providers of LNG, while the country should expect increased exports from other markets such as Turkmenistan and the emerging LNG hubs in Africa.

Additionally, Lewis noted in the case of Spain's cessation of LNG imports from Russia, the main exporters to the country would be the US and Algeria, "as they are the two best locations for delivery into Spain in normal circumstances when the Suez Canal returns to normal."

European LNG imports in 2024 totaled 33.65 million mt as of April 9, according to data from S&P Global. Of this total, 51% originated from the US, followed by around 16% from Russia; 10% from Algeria and 8% from Qatar. Notably, 4% arrived from Nigeria.

The Platts DES Northwest Europe Marker for May was assessed at $8.45/MMBtu April 9, or a 20 cents/MMBtu discount to the May TTF hub price, down 18.7 cents/MMBtu on the day, S&P Global data showed.