EU Preparing Sanctions Against Russian Liquefied Natural Gas

The fallout has been outlined.

EU countries are discussing a ban on re-exports of Russian liquefied natural gas as part of their 14th package of sanctions against Russia. Although it is not a complete ban, it will be the first time Europe will take specific measures against Russian LNG.

This is reported by RBC-Ukraine with reference to Bloomberg.

Russian producer PJSC Novatek relies on the stop-overs in the EU to transport the Arctic fuel from ice-class ships to regular tankers. Although the shutdown won't prevent cargoes from reaching Europe (where LNG imports from Russia have actually increased since the war started), it will make it more difficult to ship them to Asian countries.

On What Exactly To Be Sanctioned

In order to optimise transport costs, the Arctic Yamal LNG project, led by Novatek, uses the ports of Zeebrugge in Belgium and Montoir in France to transfer cargo from 15 ice-class vessels to regular tankers. The arriving vessel is usually unloaded at the terminal and the standard LNG tanker is loaded at about the same time. Given the ban, this will no longer be possible.

For Yamal LNG, the stopovers are necessary to allow highly specialised vessels to return to the Arctic plant, where conditions are too harsh for regular vessels. The vessel tracking data shows that as many as eight Russian cargoes are transshipped in Europe in some months, although this number varies and drops significantly in summer and autumn when the Northern Sea Route through the Arctic has less ice and provides faster access to China.

Last year, Russian LNG imports to the EU totalled 14.4 million tonnes, said consultant Energy Aspects Ltd. Transshipment, where the fuel is transshipped, was 2 million tonnes. The likely scenario is that the ban will leave these additional volumes in the block, where Russian LNG already accounts for about 13 per cent.

Will Russian LNG Production Suffer?

The sanctions will complicate shipping logistics for Russia even further and force specialised vessels to travel longer routes. Global fleets are already avoiding the Red Sea in the wake of the Yemeni Hussite attacks, forcing ships to re-route around Africa. According to Energy Aspect, shipping LNG cargoes from Yamal directly to Asia would result in higher freight and logistics costs, as well as longer icebreaker docking times.

Russia does have some alternatives: it does ship-to-ship transshipment near its northern city of Murmansk, which it could use to spare ships. It could also use the Northern Sea Route in summer, when the ice melts and a wide range of ships can reach the plant.

If alternative delivery mechanisms fail, Russian LNG exports could decline. But the country has shown great ingenuity in circumventing Western sanctions on oil/

What Means Ban For Asian Customers?

According to Energy Aspects, Russian LNG exports to Asian buyers could decline or become more expensive due to higher freight costs.

In an extreme scenario, if Novatek fails to change its logistics and Russian LNG exports are stopped, Europe would break Russia's 3 million tonnes per year supply contract with China.

The use of the Northern Sea Route or Murmansk transshipment will also be dependent on ice conditions, which will result in shifting deliveries to Asia to the second half of each calendar year.

What Is The Effect On European Companies?

According to the contractual database published by the Global Importers Group, European companies such as German state-owned Securing Energy for Europe GmbH, Shell Plc and TotalEnergies SE rely on transshipments from Yamal at Zeebrugge and Montoir.

These contracts do not expire until 2038 and 2041, potentially opening the door to force majeure notifications if transshipment is prohibited.

We remind you that since Russia's invasion of Ukraine began, Europe and its allies have been looking for ways to limit Moscow's fossil fuel revenues without causing higher energy costs for its citizens.

European Energy Commissioner Kadri Simson said the proposal for sanctions against Russian LNG had been carefully prepared. According to her, the European Commission will never propose sanctions whose damage to the EU would exceed their negative impact on the Russian economy.