Russia’s contract for the transit of its gas across Ukraine expired on December 31 last year and Kyiv refused to consider a new deal. Ukraine’s decision was supported by the European Commission, even though the lost imports are equivalent to five per cent of European demand.
It may have come as a surprise to many that, in the middle of a war between the two countries, gas had continued to flow. And although most pipeline gas from Russia to Europe had ceased, in 2024 Europe imported a record 21.5 billion cubic metres (bcm) of liquefied natural gas (LNG) from Russia — 19 per cent of its LNG imports.
Newly published data from Spain reveals that Russia remained its second-biggest supplier of LNG, accounting for 21.3 per cent of Spain’s LNG imports. The US remains the largest supplier of LNG to Europe, accounting for 48 per cent of LNG supplied in 2024.
About 20 per cent of Russian LNG that comes to Europe is re-exported to third countries, a practice that will be banned by EU sanctions in March.
So, what is Europe’s strategy here? And how might global Russian gas sales be affected by Ukraine turning off the taps?
In May 2022, three months after Russia’s invasion of Ukraine, the EU launched its REPowerEU plan. One of its principle aims was to overcome the EU’s dependence on Russian fossil fuels through the diversification of energy supplies.
The European Commission now points to the fact that 45 per cent of the EU’s gas imports came from Russia in 2021, and that share had fallen to 15 per cent in 2023 (although data suggests it increased to 18 per cent in 2024 thanks to higher imports of Russian LNG).
But so far, the EU has not placed sanctions on importing Russian gas, though it has sanctioned the Arctic-2 LNG project and associated shipping and is banning the reloading of Russian LNG in EU ports. The rapid reduction in pipeline exports to Europe is a result of Russian actions such as insisting in payment in roubles, as well as the sabotage of the Nord Stream pipelines, an event still subject to much conjecture.
The European Commission is well aware that the global gas market is still delicately balanced and that sanctioning Russia gas exports would result in very high prices, such as those seen in the summer of 2022. That energy crisis cost European governments an estimated €650 billion (£547 billion) between September 2021 and January 2023 in measures to mitigate high prices.
In 2024, Russian gas reached Europe via three routes: transit through Ukraine (30 per cent), via Turkey and the Turkstream pipeline (31 per cent) and as LNG (39 per cent). During 2025, assuming no resumption of Ukrainian transit, flows will be restricted to Turkstream and LNG.
As the global LNG market remains tight, falling Russian imports expose Europe to continued price volatility. But with a wave of new LNG production expected to kick in from 2027, it is plausible that the EU could stop all imports of Russian gas by the end of 2027.
This is what the EU’s new energy commissioner, Dan Jorgensen, announced in November 2024. It is unclear what the European Commission plans to do, presumably a continuation of measures to improve energy efficiency, accelerate the energy transition and reduce gas demand. But an outright ban on Russian imports is unlikely until the global LNG market is better supplied.
However, the outgoing Biden administration in the US has just placed additional sanctions on the Russian oil and gas industry, which could make things awkward for Brussels. Donald Trump is a long-time critic of Europe’s dependence on Russian gas, so some difficult decisions may have to be faced as part of the new plan.
Gas futures
What might this mean for Russia and for global gas security? Our team of researchers at the UK Energy Research Centre (UKERC) have published a paper in Nature Communications that forecasts how Russian gas sales might play out under two key scenarios. The first is called “limited markets” and assumes that the EU stops all Russian gas imports by 2027 and alternative routes for Russian exports are hampered by sanctions on LNG technology and infrastructure and a lack of new pipeline capacity.
On the latter, this would happen if the Kremlin and Beijing fail to reach an agreement on building the 50 billion cubic metre (bcm) Power of Siberia 2 pipeline. This would limit exports to China to the 38bcm Power of Siberia 1 route and a new 10bcm pipeline from the Russian far east.
The second scenario, called “pivot to asia”, assumes that agreement is reached on Power of Siberia 2 and Russia is also able to scale up LNG exports more rapidly. It also assumes exports to Europe would continue via Turkstream and there are no restrictions on LNG imports (the situation that prevails today).
The research also considers each scenario with relatively lower and higher future global gas demand, which will be determined in large part by climate policy ambition.
Overall, the research finds that Russia will struggle to regain pre-crisis gas export levels. Compared to 2020, Russia’s gas exports will have fallen by 31 per cent – 47 per cent by 2040 where new markets are limited, and by 13 per cent – 38 per cent under a pivot-to-Asia strategy.
Higher demand from China will not significantly improve prospects for Russia. Crucially, any future pivot to Asia is contingent on Chinese energy security and climate mitigation strategies.
It is noteworthy that in late 2024 shares in Russian state gas company Gazprom fell to a 16-year low. This was partly because of a US$7 billion (£5.73 billion) loss in 2023 and a cancellation of dividend payments. But there is also geopolitical uncertainty over the state-controlled company’s ability to find new export routes.
Our research raises two crucial questions about the future role of Russian gas on global markets. First, will the EU hold its resolve and shun all Russian gas exports by 2027 or might a cessation of Russia’s war on Ukraine result in an almighty U-turn? Second, come what may, can Russia find new export routes and markets for its huge gas reserves?
The two questions are related as increased Russian pipeline gas exports to China reduce the need for China to import LNG, resulting in a more liquid global LNG market for Europe to import the gas it needs, principally from the US. Ironically, this could be an outcome that could also ease looming trade frictions between the EU and the incoming US president.
Michael Bradshaw, Professor of Global Energy, Warwick Business School, University of Warwick and Steve Pye, Associate Professor in Energy Systems, UCL
This article is republished from The Conversation under a Creative Commons license. Read the original article.
