• Steps to limit shipments of LNG from Russia could push up natural-gas prices

Will Honer, WSJ

LONDON
EnergiesNet.com 04 27 2023

Europe is taking steps to turn off one of the last significant supplies of Russian fossil fuels, seaborne shipments of liquefied natural gas.

The question is whether the move would hurt Europe more than Russia. 

Because of Russia’s invasion of Ukraine, European governments last year slashed their longtime reliance on Russian fossil fuels, banning imports of its crude and diesel and seeking out new suppliers to replace its copious flows of natural gas.

One notable carve-out to the sanctions was liquefied natural gas. Those shipments to Europe of Russian LNG—natural gas that has been cooled to liquid form and moved on giant tankers—boomed as shipments of crude halted and flows of piped natural gas slowed to a trickle.

Cutting off LNG would mark one of the final acts in Europe’s sharp pivot away from dependency on Russian energy. While relatively small in quantity, the LNG shipments have helped to undermine Western efforts to cut off Moscow’s sources of revenue and make up half of the gas Europe still imports from Russia. The rest comes via pipelines.

The EU’s energy policy chief, Kadri Simson, has told European companies to refrain from signing new contracts with Russian suppliers. The Netherlands, one of Europe’s largest importers, said that it had already banned the signing of new contracts to import Russian LNG and asked companies to phase out Russian LNG from their stores, but that existing contracts couldn’t be broken without EU-wide measures. 

The EU’s planned measures so far have stopped short of sanctions, which would require unanimous approval from the bloc’s 27 members. Proposals instead have focused on allowing individual member states to restrict flows and preventing Russian companies from booking spare capacity at LNG terminals.

While Russia’s crude tankers have been expelled from European ports, a tanker carrying Russian LNG docks at an EU port almost once a day on average, according to ship-tracking data from Kpler and MarineTraffic. 

Imports from the tankers, which are built to punch through sheets of Arctic ice on the voyage from Russia’s Siberian gas fields to Europe, rose over 38% in 2022 to more than 15 million metric tons, their highest-ever level, according to Kpler.

“Europe needed all the LNG it could get last year. Every cargo that was available on the market they would take it,” said Xi Nan, a senior vice president for gas and LNG research at Rystad Energy. 

European governments have entered spring with far larger stockpiles of natural gas than they expected. The region’s gas stockpiles began April at around 55% full, a record for the time of year that typically marks a low point, and almost 30 percentage points higher than a year earlier, according to data from Gas Infrastructure Europe, an industry body.

Russian flows of LNG, coupled with a far milder winter than expected, are part of the reason that stocks are so comfortable. Supplies of piped natural gas from Russia also helped fill those stockpiles before they were curtailed.

European governments could face another painful gas shortage in the event of uncooperative weather, such as summer heat waves or a frigid winter, or unforeseen supply disruptions.

“It is like we are in the calm before the storm but we don’t know for sure if the storm is really coming. There are many things that could still go wrong,” said Anne-Sophie Corbeau, a researcher at the Center on Global Energy Policy at Columbia University. 

Losing all Russian LNG could more than double European natural-gas prices from their current 40 euros a megawatt hour, equivalent to around $44, to around 90 euros a megawatt hour, if no other sources of gas are available to replace it, according to consulting firm Energy Aspects.

That is unlikely, given that the contracts that govern sales between Russia’s Yamal LNG and their European buyers tend to be multidecade deals with no expiration in sight. France’s TotalEnergies SE and Spain’s Naturgy Energy Group SA are among the top buyers, according to Kpler data.

Total and Naturgy didn’t respond to a request for comment. Total owns a stake in Yamal LNG and has said it would continue to import Russian LNG as long as there are no sanctions in place. 

Russia’s LNG exports to Europe could have been worth around $27 billion last year as natural-gas prices soared, according to an estimate from Rystad Energy.

Regardless, the amount is small compared with what Russia earns on its global oil sales, and cutting off the revenues wouldn’t deal a significant blow to the Kremlin, said Simone Tagliapietra, an energy-focused senior fellow at the Brussels-based Bruegel Institute.

Instead, the move would be about sending a political message even if it harmed the European economy, he said. 

“Politically it will be increasingly unsustainable to continue receiving Russian LNG and sooner or later we will just have to cut,” he said. “The political cost, the reputational cost is higher than the economic cost.”

Write to Will Horner at william.horner@wsj.com

wsj.com 04 27 2023