Despite the fact that the EU has sharply reduced the amount of Russian gas it imports, significant volumes are still flowing into the bloc. More than two years after Russia launched its full-scale invasion of Ukraine, its gas is still flowing into Europe.
Although the European Union has significantly reduced the amount of gas it imports from Russia, the hydrocarbon still powers some European homes and businesses, thus increasing the Kremlin’s revenues.
When the war broke out, European leaders were forced to reckon with their long-established dependence on both Russian gas and oil. Gas was a particular problem, as in 2021, 34% of EU gas came from Russia.
Central and Eastern European countries were particularly dependent. When the EU proposed a ban, German Chancellor Olaf Scholz was quick to speak out against it. “Europe has deliberately removed energy supplies from Russia from the sanctions. At the moment, Europe’s energy supply for heat production, transportation, electricity and industry cannot be ensured in any other way,” he said.
Vladimir Putin took advantage of this. Throughout 2022, Russia reduced gas imports to Europe. European leaders feared a winter energy shortage. These fears never materialized, but importantly, they meant that the EU never imposed sanctions on Russian gas.
“It was never a sanction,” says Benjamin Hilgenstock of the Kyiv School of Economics. “It was a voluntary decision of the countries, and a reasonable one, to diversify their supplies and no longer blackmail Russia,” he told DW.
According to EU data, the share of Russian pipeline gas imported by member states has decreased from 40% of the total in 2021 to about 8% in 2023. However, if liquefied natural gas (LNG) – natural gas cooled to a liquid state so that it can be transported by ship – is included, the total share of Russian gas in the EU’s total volume last year was 15%.
One of the main ways to reduce the EU’s dependence on Russian gas has been to increase imports of LNG from countries such as the United States and Qatar. However, this has unwittingly led to a sharp increase in the supply of Russian LNG at high prices to the bloc.
According to Kpler, Russia has become the second largest supplier of LNG to the EU. In 2023, LNG imports from Russia will account for 16% of total LNG supplies to the EU, which is 40% more than in 2021.
Import volumes in 2023 were slightly down on 2022, but data for the first quarter of 2024 show that Russian LNG exports to Europe were up again by 5% year-on-year. France, Spain, and Belgium were particularly large importers. These three countries accounted for 87% of the LNG that entered the EU in 2023.
However, most of this LNG is not needed by the European market and is transshipped in European ports and then re-exported to third countries around the world, resulting in profits for some EU states and companies.
Most of the Russian LNG that comes to Europe is simply “transshipped,” says Hilgenstock. “So it has nothing to do with the supply of natural gas to Europe. It’s just European companies making money by facilitating Russian LNG exports.”
According to a recent report by the Center for Research on Energy and Clean Air
(CREA), just under a quarter of Europe’s LNG imports from Russia (22%) will be transshipped to world markets in 2023. Petras Katinas, an energy analyst at CREA, told DW that most of this LNG was sold to Asian countries.
As a result, some EU members, such as Sweden, Finland and the Baltic states, are putting pressure on the bloc to impose a complete ban on Russian LNG, which would require the consent of all member states.
The EU is currently discussing a ban on re-exporting Russian LNG from European ports. According to the Bloomberg news agency, they are also considering imposing sanctions on key Russian LNG projects, such as Arctic LNG 2, the UST Luga LNG terminal, and the Murmansk plant.
“We really should basically ban Russian LNG,” said Hilgenstock. “We don’t think it plays any significant role in Europe’s gas supply, or that it can be replaced relatively easily with LNG from other sources.” A 2023 study by the Bruegel think tank confirms this analysis.
However, Acer, the EU’s energy regulator, recently warned that any reduction in Russian LNG imports should be done in “gradual steps” to avoid an energy shock.
EU countries continue to receive Russian gas
Pipeline gas from Russia also continues to flow to the EU. Although the Nord Stream pipelines are not working and the Yamal pipeline no longer carries Russian gas to Europe, it still arrives at the Austrian gas hub of Baumgarten via pipelines that pass through Ukraine. Austrian state-owned energy company OMV has signed a contract with Russian gas company Gazprom until 2040.
In February, Austria confirmed that 98% of its gas imports in December 2023 will come from Russia. The government says that it wants to terminate the contract with Gazprom as soon as possible, but for this to happen, EU sanctions against Russian gas must be legally imposed.
Like Austria, Hungary continues to import large quantities of piped Russian gas. Hungary has also recently signed a gas deal with Turkey, but experts say that this gas, which is supplied by the Turkstream pipeline, also comes from Russia.
Gilgenstock says that some countries continue to buy Russian gas because they benefit from cheap and attractive contracts. “So if there is no embargo on Russian gas, it all depends on these countries,” he says.
For countries such as Austria and Hungary, the possible suspension of pipeline imports from Russia may ultimately depend on Ukraine. Kyiv insists that it will not extend the existing agreement with Gazprom on gas supplies through its territory. This agreement expires at the end of 2024.
Although Russian gas is still imported into Europe, its overall share of European gas imports has fallen sharply since 2021. The EU says it wants to be completely free of Russian gas by 2027, a goal that Gilgenstock believes is looking increasingly realistic.
“I think that if this whole messy story has shown us anything, it’s that we can diversify our gas and other energy supplies relatively quickly by getting off Russia,” he said.
However, in his opinion, the political environment is “not very favorable” for a full gas embargo, especially for a pipeline embargo. He cites Hungary’s EU presidency in the second half of 2024 as a potential obstacle. Budapest has closer ties to Moscow than most EU member states.
As for LNG, he is more optimistic and says that, in addition to EU action, major LNG importers such as Spain and Belgium must take action themselves.
“This illegal import of Russian gas is a huge problem, especially in terms of messaging,” he said. “And we are helping Russia with its LNG supply chain, which we shouldn’t be doing.”
The prime ministers of Croatia and Greece may run for the presidency of the European Commission, German newspaper Bild reports, citing EU sources. “As an EU insider told BILD, two possible alternatives have already been proposed. Greek Prime Minister Kyriakos Mitsotakis (56, a powerful and influential member of the European People’s Party) and Croatian Prime Minister Andrej Plenkovic (54, won the internal elections this week) have expressed interest,” the Bild article says.
In March of this year, the European People’s Party voted to support European Commission President Ursula von der Leyen as a candidate for the post of European Commission President.
The President of the European Commission is appointed by the European Parliament, the elections to which will be held on June 6-9 this year.
The Steering Board of the Ukraine Investment Framework, set up by the EU on April 17 under the Ukraine Facility instrument, has allocated more than EUR1bn of funding to de-risk investments, mainly of small and medium-sized enterprises in Ukraine, through International Financial Institutions (IFIs) and banks, Ukraine’s Deputy Economy Minister Oleksiy Sobolev said.
“That is, this year, financing for SME development will be enough,” he said at Ukraine’s Future Summit in Brussels on April 18.
Sobolev called for more active trade and joint ventures with Ukrainian companies, because the above mechanism will provide leverage and additional guarantees.
“Thanks to the Ukraine Plan and Ukraine Facility, you will have available financing for business expansion in Ukraine, and what we need right now will be available. This year it will be available through Ukrainian banks and through MFIs: EBRD, EIB, IFC, KfW”, – said the Deputy Minister of Economy.
He specified that about 20 Ukrainian banks participate in these programs.
“So, in fact, you can apply to your Ukrainian bank, and he will provide additional financing to your companies,” – explained Sobolev.
Prime Minister of Ukraine Denys Shmyhal said that Ukraine seeks to start negotiations on joining the European Union as soon as possible – no later than June this year, the Communications Department of the Secretariat of the Cabinet of Ministers of Ukraine reported on Friday.
“We expect the EU to approve the negotiation framework for us without delay. We see no objective obstacles that could prevent this. We are actively supported by all European countries,” Shmyhal said at the panel “European Integration of Ukraine, its Regions and Territorial Communities” at the forum “Life of Regions in War.”
He added that Ukraine has reliable partners in the EU who are ready to help and share their experience for the successful completion of the negotiation process.
The Prime Minister noted that Ukraine has done all the homework to start negotiations on joining the EU. “The European Commission has confirmed that Ukraine has fulfilled all the conditions. We have demonstrated well-coordinated work. Today, the President announced a proposal to develop an infrastructure for European integration. This should include representatives from the government to communities who will work with European funds,” Shmyhal said.
He added that the Ukrainian government, for its part, is ready to help communities attract as much money as possible from the EU. At the same time, the main problem remains the ability of communities to prepare and present relevant projects. “This should be a priority for communities. Because this year we have access to European funds. Ukraine has moved from candidate status to negotiator status. And this gives us additional opportunities,” Shmyhal said.
In 2023, Metinvest Mining and Metallurgical Group sold 48% of its steel and mining products in the European Union (EU), compared to 49% in 2022.
According to the Group’s annual report, in 2023, Metinvest sold 35% of its total products in Ukraine (28% in 2022), 2% (7%) in MENA, 1% (3%) in the CIS, 7% (4%) in Asia, 6% (6%) in North America and 1% (3%) in other regions for a total of $7.397 billion ($8.288 billion).
At the same time, the share of the company’s steel segment’s revenue in the EU last year was 50% (49% in 2022), it sold 38% of its steel products in Ukraine (30%), 3% (10%) in MENA, 1% (4%) in the CIS, no supplies in Asia in 2023 or 2022, 7% (6%) in North America, and 1% (1%) in other regions for a total of $4.846 billion ($5.716 billion).
In addition, the company’s share of iron ore sales in the EU in 2023 was 44% (51%), in Ukraine – 30% (22%), in MENA – 0% (2%), in Asia – 20% (13%), in North America – 5% (6%), and in other regions – 1% (7%) for a total of $2.551 billion ($2.572 billion).
Contrary to forecasts, Ukrainian corn has started to rise in price on world markets due to increased demand from China, Turkey, Egypt and the European Union, according to the analytical cooperative “Pusk”, created within the framework of the All-Ukrainian Agrarian Council (AAC).
“The expectations of the trade that with the arrival of a new corn crop from Argentina on the world market, demand and prices for Ukrainian grain would fall, did not materialize. Argentine new crop is sold at higher prices than Ukrainian corn. We can predict a rise in prices for corn from Ukraine in the coming weeks,” the analysts said.
According to them, China is actively contracting Ukrainian corn. Other importers, such as Turkey, Egypt, Italy, and Spain, have also started buying a lot of Ukrainian corn. In seaports, the conditional prices for it have risen to $142-145/ton and have been increasing for a week and a half. The supply is sinking, while demand is stable.
“It can be predicted that amid demand, prices will add $2-3 per tonne per week and reach at least $150/tonne on a CPT basis by the end of March,” the experts emphasized.
They said that in April, the main factor of corn price changes will be the information on the grain harvest in Brazil. In April, there will be more reliable information about the harvest in Brazil: the planted areas, soil moisture, and crop condition. This will affect the global market. If the drought continues in Brazil and the harvest is reduced, the price will rise. But for now, this is one of the scenarios. In case of rainfall in Brazil, the situation on the global corn market will be different.
On a DAP basis, Ukrainian corn is traded for delivery in March-April to Italy, Austria and Germany in the range of $192-197/ton, Pusk summarized.
