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EU Commissioner for Energy: We can and should limit Russia’s access to financing and technology in the LNG sector

ENERGYEU Commissioner for Energy: We can and should limit Russia's access to financing and technology in the LNG sector

Since the invasion of Ukraine, the EU has imposed 13 packages of sanctions on Russia, aimed at weakening its ability to further finance the war. The most severe of these include technological sanctions and an EU embargo on the import of oil and petroleum products from Russia by sea. However, gas from that direction, which before the war flowed to Europe mainly through the Nord Stream pipeline, has not officially been subject to sanctions. The upcoming 14th sanction package is likely to include restrictions covering the trade of Russian liquefied natural gas (LNG). This will be the first time Brussels targets the Russian gas sector.

In 2022, Gazprom itself began to halt supplies to its main customers in the EU, aiming to exert pressure and force Western countries to change their policy towards Ukraine.

“Russia unilaterally decided to cut off gas supplies to European consumers despite having long-term contracts with many European companies. They attempted to manipulate our energy market and as a result, consumers, households in the EU had to pay very high bills in 2022. It was a unilateral decision by Russia, which at the same time lacked an alternative supply route to sell the same gas in other markets, because even Russia needs time to build new gas transport infrastructure. Now, the Russians plan to sell some of their gas as LNG and have launched several LNG terminals. Therefore, we can—and should—limit their access to financing and technology,” said EU Energy Commissioner Kadri Simson at the EKG in Katowice, speaking to Newseria Biznes.

Russian gas, which before the war flowed to Europe mainly through the Nord Stream pipeline, has not officially been sanctioned yet. Some EU member states, including Hungary, have been reluctant to agree to this due to a high level of dependency on Russian resources. This is set to change, as the 14th package of sanctions on Russia, which is expected to be ready in the coming weeks, is likely to include restrictions on the trade of Russian liquefied natural gas (LNG).

“We have introduced sanctions on crude oil, with few exceptions to this rule. These sanctions cover both crude oil and refined products, and European companies no longer buy oil from Russia. Moreover, together with G7 partners, we have also introduced a price cap on Russian oil when it is transported to third countries via European vessels. This is only possible when the selling price is below the market price,” reminded Kadri Simson. “Regarding gas, the member states have not yet agreed on sanctions; unanimity is necessary here. However, energy ministers have agreed on a gas-hydrogen package and introduced a solution that allows national authorities to limit access of Russian vessels, units transporting LNG, to their terminals. This package comes into effect on May 21. We are also discussing how we can sanction certain elements of LNG trade, such as transshipment.”

Observers note that the EU is unlikely to impose a complete ban on purchasing Russian LNG by Community countries but will include restrictions on, among others, the transshipment of this raw material in European ports. However, this will still be painful for Russia, as since the outbreak of the war with Ukraine, its LNG exports have increased, and Russia has even started building additional terminals to further increase its export capabilities.

As the Energy Commissioner emphasizes, the EU still has several options that could hit the Russian energy sector and its economy, weakening its ability to continue the war.

“When we manage to encourage our international partners to focus on energy saving, global markets stabilize, and Russia cannot profit from war-time energy rates. And this is what we have been doing for two years. We can also limit Russia’s access to technologies needed to sustain its fossil fuel industry. In this way, we can ensure that their production volume significantly decreases over time,” says the EU Energy Commissioner.

Since the Russian invasion of Ukraine, the EU has imposed a total of 13 sanction packages on Russia (and Belarus). They target the political and military elite responsible for the invasion, but their main goal is to weaken Russia’s ability to further finance the war. These include a complete ban on the import of Russian coal and an EU embargo on the import of Russian oil and oil products to EU countries by sea (effective from the turn of 2022 and 2023). In practice, this means that European countries can no longer import Russian fuels, diesel, and heating oil. The most impactful on the Russian economy are also technological sanctions, i.e., the ban on exporting technologies that can be used in the energy sector. If Brussels decides to impose restrictions on Russian LNG—a move advocated by Poland and the Baltic countries—it will likely be the most severe sanction to date, especially as it is also targeted by U.S. sanctions.

“We have managed to form a united front to introduce measures that hit the Russian economy hard, cutting it off from revenue sources and sending a clear signal that any aggressor must pay a high price for their actions,” says Kadri Simson. “However, sanctions require unanimity. Therefore, each time the European Commission proposes new sanctions, we try to assess whether

they will cause greater difficulties in our economies. And this is one of the reasons why—instead of proposing gas sanctions—we are making great efforts to find alternative suppliers of this raw material.”

In 2021, before the outbreak of war in Ukraine, about 25% of the EU’s oil imports (nearly 3 million barrels per day), 44% of coal imports (most nominally imported by Germany and Poland), and almost half of natural gas imports—about 155 billion cubic meters of gas annually—came from Russia (data from the report “European Union Independent from Russia? Alternative Sources of Energy Supply” by the Polish Economic Institute). The European Commission reports that in 2021, energy raw materials accounted for as much as 62% of all Russian imports to the EU and collectively cost the Community countries close to 100 billion euros. For the Kremlin, oil and gas are tools for exerting pressure on Western countries, but also a source of financing for the Russian war machine: according to the PIE, before the war, sales of energy raw materials generated about 1/3 of the revenues to the Russian central budget, and profits from the sale of oil to EU countries alone accounted for about 10% of the revenues.

“Before Russia started the unjustified war against Ukraine, Europe was highly dependent on the import of Russian raw materials,” says the EU Energy Commissioner. “We have already significantly reduced imports from Russia. It is also important that we were able to replace natural gas with renewable sources in terms of energy production. The years 2022–2023 were record years in Europe for the use of renewable sources, for the first time in history we obtained more energy from wind and solar than from gas.”

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