Home Society EU finally ready to bring down Russia’s gas empire … sort of
EU finally ready to bring down Russia’s gas empire … sort of

EU finally ready to bring down Russia’s gas empire … sort of

by host

For the first time since Moscow launched its full-scale attack on Ukraine more than two years ago, the EU is expected to aim its sanction bazooka at Russia’s lucrative gas sector.

But the proposals on the table would only touch a fraction of the billions Moscow gets annually from liquified natural gas, leaving plenty for its war chest.

The European Commission is poised to release a proposed ban on EU ports reselling Moscow LNG as soon as Friday, according to three EU diplomats. The Commission will also ask for restrictions on three upcoming Russian LNG projects, they added. The measures will come as part of Brussels’ 14th sanctions package.

The LNG sanctions are designed to stifle a lucrative business for Moscow that keeps its energy cargoes moving around the world. Yet as written in draft proposals — still subject to change — the penalties would only hit around a quarter of Russia’s €8 billion in LNG profits, according to experts and data analyzed by POLITICO.

That comes amid repeated warnings that EU and Western efforts to choke off Moscow’s fossil fuel revenues have largely failed. While the EU has banned imports of Russian coal and seaborne crude oil, numerous loopholes and evasive tactics have kept money flowing to the Kremlin.

Meanwhile, the EU has made little progress in punishing Moscow’s LNG sector. Although the fuel made up just 5 percent of the EU’s gas consumption last year, it remains a cash cow that the Kremlin relies on to wage war. France, Spain and Belgium have been the biggest hubs for the supercooled gas, much of which is then exported to countries including Germany and Italy.

Breaking the ice

Halting the EU resale of Russian LNG would require Moscow to overhaul its current business model — no small feat.

Without European ports as a convenient layover stop, Russia would have to use specially equipped icebreakers that cut through Arctic Sea ice — which are in short supply — to get its gas to Asia.

That would hurt Russia’s vast $27 billion Yamal LNG plant in the Siberian far north, according to Laura Page, a gas expert at the Kpler data analytics firm. 

“If they can’t transship in Europe, they might have to take their ice-class tankers on longer journeys,” she said, meaning Russia “may not be able to get out as many loadings from Yamal because their vessels can’t get back as quickly.”

The shift would blow a €2 billion hole in Russia’s LNG revenues, based on last year’s figures, said Petras Katinas, an energy analyst at the Centre for Research on Energy and Clean Air think tank.

That’s a lot of money but represents only 28 percent of Russia’s LNG profits and just over a fifth of its exports to the EU last year.

The ban “is a good first step forward,” Katinas said, but “it’s not enough” if the EU wants to throttle the Kremlin’s cash flow.

Meanwhile, potential sanctions on Russian LNG projects — including Arctic LNG 2, its Murmansk plant, and the UST Luga LNG terminal — are a “paper tiger,” Katinas said, since none of them are currently sending cargoes to Europe.

The EU’s proposals are also laden with legal complications.

Depending on how the Commission defines “transshipments,” the importers likely to be most affected will be Spain’s Naturgy, France’s Elengy and Belgium’s Fluxys, said Katinas, all of which have long-term contracts linked to Russia’s Yamal LNG.

But it’s unclear whether EU sanctions would allow the firms to safely end their contracts unilaterally without facing penalties or legal action from their Russian partners, he added.

A spokesperson for Fluxys said it would “fully comply” with sanctions if imposed, but noted the firm had “no control” over the origin of LNG kept in its storage sites and that it was “obliged to respect the contractual agreements” with its customers.

Elengy and Naturgy didn’t respond to requests for comment. Novatek, Gazprom and RusGazDobycha, the owners and operators of the Russian LNG projects being considered for EU sanctions, also didn’t respond to questions sent by POLITICO.

Liquid luck

The Commission has resisted sanctioning LNG so far despite repeated requests from the Baltic countries and Poland. The new proposal, however, seems to be gathering political support quickly.

“As part of a new package of sanctions against Russia, the federal government is calling for a gradual end to transshipment of Russian LNG in European ports,” Belgian Energy Minister Tinne van der Straeten said on Tuesday. “We must … stop adding to Putin’s war chest.”

German Economy Minister Robert Habeck said last week that he would “very much support” restrictions on Moscow’s LNG — the endorsement is crucial given Germany’s size — while Italy’s Energy Minister Gilberto Pichetto Fratin told POLITICO on Sunday the country “has no reason to oppose” such sanctions.

Pressure is also mounting on EU countries to tighten penalties on Russian fossil fuels, given that some are showing diminishing returns. Just this week a group of ocean tanker insurers controlling much of the global market called a G7 measure to limit Russia’s oil revenues to $60 per barrel “increasingly unenforceable” as Moscow relies on a parallel trade conducted by shadow vessels outside Western control.

Still, Brussels may struggle to get all 27 capitals on board with the new LNG penalties, a requirement for any sanctions to pass. Hungary, for example, may veto the move in light of its historical record of blocking restrictions on Russian gas out of principle.

For others, meanwhile, the sanctions package is anticlimactic. 

It’s “disappointing … that we’ve been waiting for such a long time for the proposal of the 14th package,” said one EU diplomat, who was granted anonymity to speak candidly.

Sanctions are “meant to hurt the Russian economy and its ability to wage the war in Ukraine,” the diplomat added. “All the more [reason why] the 14th package should be comprehensive and strong.”

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