EC Expected To Propose Partial Ban of Russian LNG as Kremlin Issues Strong Rebuke
European Commission Berlaymont building illuminated with the Ukrainian flag. (Source: Claudio Centonze/European Commission)
Following recent calls by Swedish and German officials to move toward restricting the inflow of Russian liquefied natural gas the European Commission has now taken up the issue. In discussions with member states the EU is suggesting a ban on transshipments.
After many months of inaction on the issue of Russian liquefied natural gas (LNG) imports the European Commission is reportedly working on a proposal for a continent-wide transshipping ban. The measures would include sanctions on transshipments through EU ports as well as direct blocking measures against existing and future Arctic LNG projects, including Arctic LNG 2 and Murmansk LNG.
Transshipments of LNG from Novatek’s Yamal project through the ports of Zeebrugge, Belgium and Montoir-de-Bretagne, France have proven instrumental for Russian exports to third countries. Around 90 of Yamal’s production passes through EU ports.
It is unclear if the Commission’s proposal would also ban the import of LNG destined for internal consumption by EU countries, Reuters reports. Around 65 percent of Russian LNG landed at European ports remains in the EU with the remainder re-exported. The sanctions the European Commission is suggesting would affect the 35 percent that are transshipped to outside the EU.
Flow of Russian LNG to the EU and non-EU countries in Q1-Q3 2023. Proposed sanctions would affect the non-EU transshipments via Zeebrugge and Montoir-de-Bretagne. (Source: IEEFA)
Novatek’s partner in support of ban
Over the weekend France’s TotalEnergies, Novatek’s partner in the Yamal project, came out in support of sanctions. The company’s CEO Patrick Pouyanne explained that his company derives very little profits from its trading of LNG from the project.
"It is a positive if there were sanctions, not a negative, because the cash from Yamal is quite limited,” Pouyanne stated
In fact TotalEnergies stands to benefit from a ban as LNG prices would likely rise.
“If the EU sanctions Yamal LNG, the price of LNG will go up quickly and globally our portfolio will benefit,” he explained.
He also expressed skepticism if European leaders were actually prepared to phase out Russian LNG before 2027 risking their energy security and price stability.
The attempts to squeeze Russia out of energy markets continue
Kremlin vows to find ways
The possible EU sanctions have already resulted in a strong rebuke by Russia. Kremlin spokesperson Dmitry Peskov called the sanctions illegal and implied that a ban would be very profitable for the U.S.
“In fact, the attempts to squeeze Russia out of energy markets continue, of course, the shift to more expensive markets is first of all profitable for the US, for a number of other countries, of course.”
“We will obviously search for ways to overcome those illegal obstacles. Unfair and illegal competition," he continued.
Russia has relied on a large shadow fleet to overcome Western sanctions on crude oil, though its options to continue shipping Arctic LNG in the face of widening sanctions will be much more limited.
Even prior to any new EU measures, the international sanctions regime has been impacting Russia’s ability to construct new projects and produce LNG. Last week the country’s Ministry of the Economy published revised forecasts for LNG showing that production could remain stagnant until 2027 rather than grow by 50 percent as originally planned.
