Alternative front: Resisting russia's appetites in the gas market
What the West should do to make the aggressor have less money for the war against Ukraine
To make russian gas a less tempting commodity, the European Union is trying to influence the market with political recommendations and decisions that exclude the complicated procedure of coordinating new sanctions by all countries of the bloc.
Last week, EU energy ministers extended the agreement to voluntarily reduce gas consumption by 15% (compared to the average over the past five years) until 31 March 2024. They are also considering banning russian exporters from booking infrastructure capacity (LNG terminals) in advance. European Energy Commissioner Kadri Simson has called for a rejection of russian LNG – not to extend long-term contracts that are coming to an end.
Spain, which last year became the largest consumer of russian liquefied natural gas in Europe, called for the abandonment of new spot market deals with russian LNG.
How can russia 'resist' these restrictions, what trends in the russian gas industry can help the putin regime regain influence in the European gas market, and what effective measures should be taken by Ukraine's Western allies to stop the kremlin from receiving billions to finance the war – Mykola Kolisnyk, Deputy Minister of Energy of Ukraine, explained for Mind.
A resource is something that is used to achieve a goal. The aggressor's goal is to destroy our nation and state. And its resource in this matter is the export of hydrocarbons. Together with our partners, we must deprive russia of financial revenues from gas, oil, and LNG supplies, because this is money that kills Ukrainians and threatens the world.
What should we focus on?
To be proactive, we analyse the aggressor's behaviour in the natural gas market and make forecasts of its future actions. The construction of the Nord Stream 1 and Nord Stream 2 gas pipelines has become an instrument of influence and energy blackmail that Europe has faced.
Today, when the aggressor has lost its capabilities in the north, in the Baltic countries, it is trying to act in the south, in the Black Sea, where Turkey intends to build a gas hub. The russians support this project because it is a chance for them to remain a player in the market. However, it will be quite difficult for them to fully enter the project, as they will have to build the pipeline themselves, and they do not have such experience.
The Blue Stream and TurkStream were built by Italians and Swiss. And it is unlikely that they will want to work under sanctions. However, we should not relax. We have to foresee all the possibilities and not give the russians any opportunity to increase their capacity in the European market.
How will russia resist?
russia's task today is to depoliticize gas, oil, and LNG. Therefore, it will constantly try to participate in such projects: "If Europe does not want to buy directly from us, then let them buy Turkish gas." It is clear that this gas will be of russian origin, but it will be pretty difficult to prove it.
At the same time, we see russians being active in building LNG terminals. In particular, on the Arctic shelf, from where most of the LNG was delivered to Europe. And its volumes doubled over the year due to the unstable market situation and shortages.
What should the West consider?
The largest consumers of LNG in Europe are countries with developed industries – Germany, Spain, and Belgium. Their economic strategies include increasing regasification capacity. Such projects have political support, and most of them will be implemented in the short term.
However, at the same time, Western politicians are forced to think about how to prevent the trade in russian fuel, and there are no other tools but sanctions. However, they are used with certain restrictions.
Another threat is the creation of a shadow LNG fleet, which will allow russia to remain a player in the gas market. In other words, we will have a situation that we are already seeing in the oil market. Trying to compensate for at least some losses from sanctions, russia is moving its hydrocarbon trade into the shadows.
As you can see, the russians still have plans for invasion, and it must be prevented. It all depends on a key choice: with whom to sign agreements and with whom not to. russia has shown that the price of partnership with it is too high, even despite its gas discounts. Therefore, the only option is to prevent companies doing business with the aggressor from entering the market.
What should Ukraine's position be?
Ukraine must insist that russian LNG is also a weapon, even if it is traded through intermediaries. It creates real risks if we do not continue to put pressure on the aggressor and change the rules of the game in our favour. We understand that the physical supply of russian gas can be increased thanks to production companies. Among the powerful players that still have potential are gazprom, novatek, and sibur.
By the way, novatek's owner mikhelson directly stated in February that the increase in European demand for gas would open up attractive opportunities for the company, as LNG was not subject to sanctions. He estimated the supply volumes at 40-60 million tonnes, but in his opinion, they could increase to 60-70 million.
In addition, commodity traders may become part of the trading chains. So we have the prerequisites for LNG of uncertain origin, but with russian roots, to be on the market.
It is also worth mentioning the mechanism discussed at the meeting of EU energy ministers in late March. It provides for each country to ban russian LNG supplies without imposing new energy sanctions. The UK and Lithuania already have this experience.
There are other mechanisms as well. For example, Germany has banned the regasification of russian LNG at its terminals.
Of course, we should not forget about diversification. Today, there are enough suppliers to meet the deficit that will arise if russian LNG is included in the next sanctions package.
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