More than a year after the invasion of Ukraine, it still remains unlikely that Russia will regain its role as the European Union’s (EU) leading natural gas supplier, but an eventual increase in the country’s exports to the continent isn’t out of the question.
A top supplier to the EU, Russia exported about 140 billion cubic meters (Bcm) of pipeline gas to Europe in 2021 before the war broke out and exports were cut to a fraction of that total, forcing EU members to replace supplies. Although Russia continues to export roughly 25 Bcm/year to Europe by pipeline via Ukraine and Turkey, there is doubt volumes will ever reach pre-war levels again.
“For Europe to buy gas again from Russia depends on when any agreement is reached; it depends on the type of agreement, and it depends on which European countries decide to buy gas from Russia,” Jonathan Stern, a senior research fellow at the Oxford Institute for Energy Studies, told NGI. “If the outcome is a very negative agreement for Ukraine, then nothing will change…The longer this continues, the more Europeans will make other purchase arrangements.”
Limited Possibilities
Georgetown University Professor Thane Gustafson agreed. Gustafson, a Russian policy expert, said in a blog post late last year that a return of significant Russian gas volumes to Europe would depend on Ukraine’s fate after the war.
However, the conflict has also accelerated the timetable for Europe’s transition away from natural gas, Gustafson wrote, possibly making Turkey the “the sole remaining buyer of Russian gas in Europe.”
Turkey has been looking to leverage its position as a literal and political bridge between East and West to become a regional natural gas hub.
While European countries may continue to receive Russian gas through passthrough partners, the direct connections between Russia and the region’s largest buyers could be severed for the foreseeable future.
Frank Umbach, research director at the European Center for Climate, Energy and Resource Security, wrote in a recent report that Germany’s decision last year to cut all Russian fossil fuel purchases by 2024 would likely hinder efforts to repair the Nord Stream pipeline system, which was damaged in a mysterious explosion late last year.
Another reason for Europe to limit Russian pipeline and LNG imports is to comply with the REPowerEU strategy published in May 2022. The strategy is aimed at eliminating Russian fossil fuel imports by 2027.
The EU is expected to have sufficient LNG import capacity in the coming years, and its “green transition plan requires that gas demand decrease by 40% by 2030,” Umbach said.
Kpler analyst Ana Subasic told NGI that even if tensions eventually eased between the EU and the Kremlin, “the current sentiment from Europe is that it is unlikely to start buying Russian gas again due to a number of imposing constraints, including European internal policy commitments, questions on legal punitive damages, as well as damages on existing pipe infrastructure.”
Meeting the EU Shortfall
The 2022-2023 winter season was Europe’s second winter of reduced pipeline supplies from Russia, which started squeezing spot deliveries in 2021 ahead of its invasion. Since then, the EU has taken every opportunity to make up for the gas supply shortfall.
Natural gas storage levels started this injection season at their highest level in over a decade, aided by record LNG imports and steady deliveries from other pipeline suppliers like Norway and Algeria.
The bloc has also had success curbing gas consumption. EU demand fell by 17.7% between August and March, according to Eurostat data, exceeding the EU’s target to cut demand by 15% over that time. The EU has extended the target to March 2024.
To offset the drop in Russian pipeline gas, the EU imported a record level of LNG in 2022. The bloc is currently on track to exceed those levels. Kpler projects LNG imports will reach 47.72 million tons (Mt) through the first four months of the year, up from 42.94 Mt over the same time in 2022.
However, senior Rystad Energy analyst Kaushal Ramesh said that if the EU makes the decision to completely break away from Russian natural gas, it would also mean halting Russian LNG imports as well. He said Russian LNG accounted for 7% of the bloc’s total seaborne imports between January and March.
Contracts to Sort
The legal issues surrounding long-term supply contracts with Gazprom PJSC also remain a hurdle, even if tensions between Russia and Ukraine ease. Prior to the invasion, Russia maintained at least 40 separate long-term gas contracts with European buyers, according to Columbia University’s Center on Global Energy Policy (CGEP).
Gazprom could invoke force majeure, according to CGEP, due to Nord Stream damages.
But “it is Russia, the party that terminated the contracts with European companies, that in turn could seek arbitration,” CGEP’s researchers said in an analysis earlier this year. “In the event they take that step, it is unclear who will compensate for the losses.”
But the potential to import Russian gas may still exist.
Russia’s pipeline systems would still be in place, Gustafson noted. The Yamal-Europe pipeline and routes via Turkey and Ukraine are still functional. The NordStream lines “can presumably be repaired,” he added. “In short, the physical fundamentals of Russian supply will still be there.
“When the Chinese economy begins growing again, LNG will become more expensive, and Russian gas will remain the cheapest in Europe…There could once again be an economic and technological case for Russian pipeline gas, at least in the form of short-term spot sales.”
