EU Starts Roll Out of Russian LNG Import Ban at Tricky Time

Europe is beginning the roll-out of a ban on imports of Russian liquefied natural gas at a difficult time, with the war in Iran seriously disrupting global supply. 

From Saturday, the European Union will prohibit purchases of Russian LNG on a short-term basis, known as the spot market. Supplies under long-term contracts can continue until the end of the year, but the ban could still create challenges. 

The EU relies on Russia for about 12% of its gas needs, some of which arrives through pipelines. The spot-market ban could cut off about 2.8 million to 3.5 million tons a year of Russian LNG, according to estimates from Wood Mackenzie Ltd. and Energy Aspects Ltd., respectively. That’s about 3% of the bloc’s total LNG imports last year. 

The supply reduction comes at a time when the region’s benchmark gas price has already jumped about 40% because of the conflict in the Middle East. Europe will need to purchase more fuel in the months ahead to replenish depleted inventories before next winter, just as global supplies have become unexpectedly tight.

Much depends on how long a fifth of global LNG supplies will remain trapped inside the Persian Gulf.

“We don’t see much of a risk to supply just yet, but there could be a change in a couple of months,” said Tom Marzec-Manser,  director of Europe gas and LNG at Wood Mackenzie.

For now, Europe has sufficient gas, due in part to a voluntary reduction in global demand. The region has made a slow start to its storage-injection season, while consumers in Asia that might compete for supplies have chosen to curb their consumption in response to the blockade of the Strait of Hormuz.

That could change when fuel competition between Europe and Asia typically ramps up during the northern hemisphere summer. If Europe’s gas-storage injections begin to lag, that would create a dilemma for Brussels. 

EU officials have repeatedly said there should be no return to European reliance on imports of Russian energy, which have been severely curtailed since Moscow’s full-scale invasion of Ukraine in 2022. Yet they have also consistently urged member states to make refilling storage tanks a priority. 

Bigger Test

If the situation worsens, the European Commission has the power to declare an emergency and temporarily re-authorize spot market purchases of Russian fuel, according to Tom Purdie, lead LNG analyst at Energy Aspects. 

“We wouldn’t expect that lever to be pulled quickly given the optics of caving and buying Russian gas so soon after the ban,” Purdie said. “The more meaningful test comes on 1 January 2027, when the long-term flow falls out.” 

Some of Europe’s largest energy suppliers will have to terminate their contracts for Russian LNG supply next year, including France’s TotalEnergies SE, Spain’s Naturgy Energy Group SA and Germany’s SEFE Securing Energy for Europe GmbH.

Europe’s ban won’t remove Russia’s LNG from the global market. Novatek PJSC, the main shareholder of the Yamal production facility in the Arctic, which currently supplies Europe, is working hard to ensure it doesn’t. 

The company has been ramping up its sales effort across Asia, offering supply to buyers on a short-term basis linked to various price indexes, according to traders with knowledge of the discussions.

Novatek has held talks with Indian and Chinese buyers, and has also approached importers across Southeast Asia, the traders said. It signed a preliminary deal on LNG supply to Vietnam last month. Some volumes could also be redirected to Turkey and Egypt, according to Energy Aspects.

Novatek didn’t respond to a request for comment. 

There are logistical bottlenecks to how much LNG Novatek is able to send east, such as the availability of the right kind of tankers. But these efforts, if successful, might help to ease the competition between Europe and Asia for supplies from other parts of the world.