Sun. Jul 14th, 2024

Europe wants to end its dependence on Russian energy

By Vaseline May30,2024

Over the past two years, Europe has quickly distanced itself from Russian energy commodities in protest against Russia’s war in Ukraine. The European Union’s embargo on crude oil imports from Russia came into effect in December 2022, followed by an embargo on oil products (including gasoline and diesel) in February 2023. Meanwhile, natural gas imports fell by more than 70% to 43 billion cubic meters. meters (bcm) in 2023, up from 150 bcm in 2021. And now reports have emerged that Germany and the Czech Republic are pressing the European Union to completely eliminate the remaining energy sources that Europe imports from Russia.

According to Reuters, the two countries will ask Brussels to initiate regular high-level talks – possibly between the countries’ energy ministers – to end Russia’s remaining energy imports.

Although the EU has largely replaced Russian gas with natural gas (mainly in the form of LNG) from the United States and Norway, the bloc still got 15% of its gas from Russia last year. Last year, Russia sent more than 15.6 million tons of LNG to the EU, an increase of 37.7% compared to 2021, the year before the Russian invasion of Ukraine. Reuters has reported that Berlin and Prague plan to make the call at a meeting of EU countries’ energy ministers in Brussels on Thursday. Ministers will discuss the obstacles they face in phasing out Russia’s still high energy imports.

The latest move by Germany and the Czech Republic represents the latest attempt by EU members to fully sanction Russian gas imports. However, some EU members – including Hungary and Austria – remain heavily dependent on Russian gas. This implies that countries that support a full ban could expect significant backlash, with Hungary previously saying it would block such a move. The bloc has already banned the import of Russian coal and crude oil from the sea, with exceptions for some landlocked countries.

Over the past two years, the EU and its Western allies, including the United States, have imposed a series of sanctions on Russian energy commodities, including a $60 per barrel limit on Russian seaborne crude oil exports. However, they have avoided imposing restrictions on Russian gas while trying to create new source markets. Fortunately, the continent has been hugely successful in replacing Russian gas and managed to emerge from last winter with gas supplies at record levels. Europe’s search for new markets was helped by record natural gas production in the US and reduced heating demand thanks to two consecutive mild winters. Norway and the US have replaced Russia as Europe’s largest gas supplier: Last year, Norway supplied 87.8 billion cubic meters of gas to Europe, accounting for 30.3% of total imports, while the US supplied 56.2 billion cubic meters of gas , accounting for 19.4% of total imports. .

Beaming with confidence, Europe is now getting ready to pull the trigger: Politico has reported that the European Commission has proposed sanctions against Russia’s LNG sector as part of Brussels’ 14th sanctions package against Russia. Under the proposed sanctions, EU countries would be prevented from re-exporting Russian LNG after receiving it, as well as banning EU involvement in upcoming LNG projects in Russia. However, the measures would not directly hinder Russian LNG imports to the EU. Like previous sanctions, the proposed import ban is intended to disrupt Putin’s ability to continue financing his war in Ukraine. Although Russian LNG accounted for just 5% of the bloc’s energy consumption in 2023, it still generated about $8 billion in revenue for the Kremlin.

A complete ban on Russian gas by the EU will most likely lead to a new increase in gas prices.

Natural gas has staged a major rally, with Henry Hub prices rising from $1.61/MMBtu on April 26 to $2.66/MMBtu during Thursday’s intraday session, as markets increasingly price in risk premiums for the heated situation in the Middle East and Europe are preparing to dump more Russian gas. Meanwhile, European natural gas prices fell slightly to €34 per megawatt hour, close to a five-month high of €35.4 on May 23, amid expectations of lower supply amid robust cooling demand.

The weatherman predicts aggressive heat waves in Europe later in the summer, with higher temperatures expected in northern Europe in early June, as well as excessive heat in France and Spain. High temperatures in Asia have also intensified competition for LNG bidding at major hubs, underlined by the 16.7% annual jump in imports from Japan in April.

On the supply side, European courts could rule that it is illegal for Austrian gas giant OMV to pay Russia’s Gazprom for gas exports, potentially jeopardizing supplies to the country.

By Alex Kimani for

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