INTERVIEW: EU expects to finalize 14th Russian sanctions including LNG in June: Simson

The European Union expects to finalize its 14th sanctions package against Russia in June, with measures targeting transshipments of Russian LNG as well as three LNG projects including Arctic LNG 2, European Commissioner for Energy Kadri Simson told S&P Global Commodity Insights June 3.

"This 14th [sanctions package] is the first one, where we cover also partially LNG trade and specifically transshipments," Simson said in an interview on the sidelines of the Japan-EU Energy Ministerial Meeting and Hydrogen High-Level Business Forum in Tokyo.

Following the proposal, EU member states have discussed it and requested for additional information, she said.

"We have provided them assessment on how these measures will impact international LNG markets," said Simson. "Our assessment is that it doesn't have a major impact to global LNG markets and LNG markets right now are liquid enough to cover the demand even if we introduce our 14th package."

"And based on that, we expect that the member states will finalize their position for sanctions to be adopted. We need all 27 member states on board," she said, adding that European leaders are scheduled to meet twice in June.

Asked whether the EU's 14th sanctions could be finalized in June, Simson said, "there is a clear expectation for that."

Simson named the three LNG projects of Arctic LNG 2, Ust-Luga and Murmansk, when asked to specify Russian LNG projects being subject to the EU's proposed sanctions.

"Europe will cut Russia's ability to increase LNG production. And for that, we use our sanction regime," Simson said. "This doesn't impact the current production volumes but avoids the situation where Russia can earn additional premiums by liquefying their gas and selling it to global markets."

The expected move by the EU comes as the US and UK have sanctioned Novatek's Arctic LNG 2 project with a total planned production capacity of 19.8 million mt/year.

The project developers of Arctic LNG 2 were originally planning to build around 21 Arc7 icebreaking LNG carriers specialized to operate in icy conditions, but the 172,600-cu m vessels' construction has been hampered by sanctions and their fates were uncertain.

Market assessment

Asked to elaborate on the EU's market assessment, suggesting that there will be no major impact on global LNG markets from the proposed sanctions, Simson said: "First of all, if we will restrict Russian LNG vessels to enter European LNG terminals, then we do this by acknowledging the need to prolong our energy-saving measures," referring to the EU energy ministers' agreement to maintain their gas saving measures.

"And by doing so, we can compensate the LNG volumes that some European companies still receive from Russia. If we will introduce sanctions on transshipment, then that doesn't mean that we will take a very rational ability to sell to the third countries," she said.

"They just have to find other vessels and other means to transport LNG over long distances. This will be more costly for Russian companies. It will impact the revenues but doesn't cut the volumes as such from global market."

Simson also said that the EU member states already have "other legal tools at our government's disposal that will allow them to restrict Russian gas entering into European networks," following the May 21 enforcement of the EU decarbonized gas market and hydrogen package.

"And in this package, EU energy ministers and the European parliament agreed that we will allow national governments to adopt decisions that will restrict Russian LNG vessels entering European terminals in case if it doesn't harm our security of supply," Simson said.

G7 communique

Asked to comment on the G7 Torino communique issued in April that supports ending "significant dependency on, and to work on transitioning away from imports of Russian gas as soon as possible," Simson said: "This agreement was achieved because everybody recognizes that Russian gas industry is sponsoring the war economy."

"So every molecule of gas that we are buying from Russia is giving revenues to the aggressor to then finance this destruction in Ukraine. So, this is our moral obligation to stop financing Russian war machine."

Noting some G7 members were "more dependent on Russian gas supplies than others," Simson said: "We have been preparing ourselves since very beginning of 2022 for this situation, where Russia, unilaterally cut us off and to avoid this kind of situation where they can manipulate these remaining gas volumes."

"We made a clear commitment at latest 2027, we will not buy any Russian gas. It is a step-by-step approach. The next step will be December 2024, when a gas transit agreement between Ukraine and Russia will expire," she said, adding that half of the gas that Europe receives from Russia comes via the Ukraine route.

"And Ukrainians will not start any negotiations with Russian companies, unless Russia withdraw from their territory troops. So, we know that 14 billion cu m of gas that we received so far via the Ukraine route will be lost for us."

"And we are prepared for that. We have found alternative suppliers and supply routes," she said.