In a report published on Wednesday 28 June, the European think-tank Bruegel sets out to demonstrate that the European Union can do without Russian liquefied natural gas (LNG), and argues in favour of an EU embargo, rather than ‘soft sanctions’ that would discourage further purchases, but not break long-term contracts, which would mean continuing to fund of the Russian state and, by extension, the war effort.
While the European Union has set itself the target of eliminating fossil fuel imports from Russia by 2027, LNG imports have remained remarkably stable.
According to the report, LNG exports to the EU were valued at €12 billion in the year following Russia’s invasion of Ukraine. Barring any changes, the EU could pay Russia up to an additional €9 billion in the second year of the war.
While action has been taken to limit and gradually eliminate imports of crude oil, diesel, natural gas by pipeline and coal, discussions are underway to add Russian LNG to the list of products banned from import into the EU, by preventing Russian companies from booking LNG import infrastructures. For the moment, no proposal has been finalised.
Bruegel proposes three main options for the EU: - the ‘wait and see’ approach, which would involve the EU continuing to import Russian LNG and waiting until the second half of the decade to introduce sanctions, when LNG markets are less tight; - ‘light sanctions’, which would involve a partial effort to reduce imports of Russian LNG; - a total embargo, which would require companies to declare force majeure on long-term contracts.
The fourth alternative option is ‘an EU embargo with an offer from the EU energy platform’ which would allow offers to be made for the purchase of limited volumes of Russian LNG, via the new EU energy platform for the joint purchase of gas (see EUROPE 13169/5).
“After terminating existing long-term contracts with Yamal LNG, the EU as a bloc could then offer to purchase Russian LNG at a lower than market price, which may be revised, depending on the evolution of the situation in Ukraine”, the report says.
This approach could be complemented by the introduction of a price cap for Russian LNG imports that rely on EU or G7 services, including transhipments, vessels and marine insurance.
According to Bruegel, the impact of removing Russian LNG from the market during the summer months is likely to be very limited, and price increases would be marginal in winter, with the extent of these price rises depending on the overall tightness of the global LNG market.
Bruegel concludes that the impact of eliminating Russian LNG would not be comparable to the shocks caused by the drop in Russian gas flows via pipelines in 2022.
To see the report, go to https://aeur.eu/f/7t4 (Original version in French by Pauline Denys)