Earlier, the EU adopted 13 sanctions packages against Russia. None of them have contained sanctions against Russian gas exports. When the EU decided yesterday that it will be prohibited to resell liquefied gas, LNG, to third countries, it is the first time that a collective EU has adopted anything against Russian gas. Nevertheless, Russian gas exports to Europe have fallen dramatically. Many countries have voluntarily chosen to cut imports. Russian gas producers earn less, and the uncertainty affects new projects. Here are five things you should know about the Russian gas industry after President Putin’s full-scale attack on Ukraine in 2022: Gas imports reduced without EU sanctions In 2021, 34 percent of all gas the EU used came from Russia. In 2023, the proportion had fallen to 15 per cent. Germany’s imports of gas from Russia fell by more than 90 percent in the first year of the war in Ukraine. Photo: Michael Sohn / AP Russia itself was quick to use the gas weapon in response to the EU’s first sanctions. All exports via Nord Stream 1 to Germany and the pipeline from Jamal via Poland had been stopped by mid-September 2022. The winter of 2022–2023 was cold and expensive for many Europeans. Energy prices exploded. Gas from Norway, the USA and other sources was not enough to compensate for the loss of Russian gas. Several EU countries realized that they had to reduce their dependence on Russian gas. Germany and Italy are among those who have cut imports the most. But the dependence on Russian gas made it impossible for the EU to agree on a full gas boycott of Russia. Sweden, Finland and the Baltic countries are at full stop. They are in the minority. Today’s sanctions decision does not affect EU consumers It must still be permitted to import Russian gas for own consumption in the EU. This applies to both natural gas in pipes and LNG, which is liquefied gas transported by ship. Spain, Belgium and France in particular buy Russian LNG. These countries have built their own storage facilities to receive liquefied gas. Last year, Russian LNG covered 6 percent of the EU’s gas needs, according to the European Commission. LNG terminal in the Belgian port of Zeebrugge. The terminal belongs to the Belgian company Fluxys, which is important when it comes to receiving and reloading LNG from Russia. The picture is from February 2023. Photo: John Thys / AFP But over a fifth of the Russian LNG gas to Europe has been sold on to third countries. Among them are China, India and Turkey. This is what is prohibited in the EU’s new sanctions package. The ban affects commercial companies that make money from resale, not European consumers. It affects not least the owners of European LNG ships with long-term contracts for shipping Russian LNG from Zeebrugge in Belgium to other parts of the world. Differences between LNG and piped gas LNG and piped gas are used for the same purpose, but there are major differences before the gas reaches consumers. LNG is natural gas that is liquefied through cooling to below -161 degrees Celsius. The volume is thus reduced around 600 times. Thus, the gas can be transported on ships and sold to anyone who has suitable storage facilities and facilities for conversion to normal gas. Few countries have that. Gas in pipes is in many ways easier once the pipes are in place. Then you can build “side pipes” that enable the gas to be sold to a number of buyers along the route to the terminus. For example, Russian gas is still transported to Austria and Hungary through pipes that go via Ukraine. That transit agreement expires at the end of the year. And it costs enormous sums to build gas pipes. Often, the seller and buyer will share the costs, as happened with the Nord Stream pipelines to Germany via the Baltic Sea. Both are now out of business. The Power of Siberia gas pipeline has since 2019 transported gas from Sakha in Russia to China. But China is not as interested as Russia in building the sequel, Power of Siberia 2. Photo: Maxim Shemetov / Reuters Putin is currently very interested in building a new pipeline from the Yamal Peninsula in Siberia to China. But it is so expensive that he needs promises about the price and quantity of gas from President Xi. He hasn’t got that, which is why Power of Siberia 2 has been postponed time and time again. Russia hunts for new markets Ships with liquefied gas are easier to divert than gas in pipes. Therefore, long before the invasion of Ukraine in 2022, Russia had big plans for new LNG facilities. While the EU aims to become completely independent of all types of Russian gas by 2027. It is not certain that they will succeed in practice. But Russia must be prepared for it. Therefore, both the president, his ministers and the gas companies are now hunting for new contracts. President Putin offered Vietnam a long-term contract for supplies of LNG during the state visit. Photo: Manan Vatsyayana / AP At the latest today, President Putin lured Vietnam with long-term supplies of LNG. Vietnam already has warehouses for reception. In Asia, Japan, China and Taiwan are already significant customers for Russian LNG. Russian gas industry struggles The Russian gas industry is already feeling the consequences of the Ukraine war. Avisa Financial Times recently referred to an internal report from Gazprom which states that gas exports to Europe cannot be up to the 2020 level in 2035 at the earliest. Even without an import ban from the EU, the sanctions hit in several ways. Russian industry is unable to produce spare parts for Western-made turbines. Russian Gazprom is still the world’s largest gas company, here the logo at its headquarters in Berlin, April 6, 2022. German authorities nationalized one of Gazprom’s subsidiaries, SEFE, after Russia’s full-scale invasion of Ukraine. Photo: Michael Sohn / AP It will take at least five years and greater investments than Gazprom can manage with today’s gas prices to make purely Russian gas turbines. For the first time, the world’s largest gas company made a loss last year, exceeding NOK 72 billion. Gazprom sells gas in pipes. The company now expects to lose market share to Russia’s second largest gas company, Novatek. They specialize in LNG. But Novatek is also struggling. And here American sanctions play an important role. The US has set itself the goal of stopping all new Russian LNG projects. When Arctic LNG2 in the Jamal region ended up on a sanctions list in January, two Chinese, French Total and a Japanese company withdrew from the project. A platform for the storage of liquefied gas from the Arctic LNG2 project is being built here in Gydan in the Yamal-Nenets autonomous district in Siberia. The picture is from Murmansk in 2021 and the platform has since been transported by sea to the Yamal region. A third such platform is now being built in Murmansk, but it is unclear whether it will be transported east Photo: Natalia Kolesnikova / AFP Specially built South Korean ships with icebreaking capacity are not put into operation for Novatek due to sanctions. American authorities are taking detailed steps to prevent Novatek from building a new facility for LNG in Murmansk. There is no need for icebreakers. But a Russian company that will produce insulation for LNG storages is on the sanctions list. The US is also sanctioning companies that can help build a 1,300 kilometer long pipeline from the gas fields to Murmansk LNG. Money, politics or both? Arctic LNG2 has now stopped planned production, and it is unclear what will happen in Murmansk. It belongs to history The USA is the world’s largest exporter of LNG. Russia is also a competitor. Here in Russia, many believe that this is the main reason why the USA is running a solo race without the EU on the team when it comes to sanctions. But for the time being, many thousands of Europeans can warm themselves with Russian gas from other sources. Listen to Utenriksredaksjonen’s podcast: Published 21.06.2024, at 09.51
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