LNG
This new report by CREA proposes based on an analysis of the LNG market. Key take-aways:
Increased LNG Imports with Constant Russian Supply: Following Russia's invasion of Ukraine and subsequent EU gas embargo, EU imports of liquefied natural gas (LNG) have increased, mostly from new sources but including continued and even increased imports from Russia. Some countries are still dependent on Russian LNG. Notably, countries like Spain, Belgium, France, and the Netherlands are large importers.
Re-export of LNG Imports: A significant portion (22%) of the LNG imports to the EU are not used within the EU but are re-exported. This suggests that these imports are not strictly needed within the EU and calls for a deeper analysis of national gas markets.
Russia's Dependence on Western Infrastructure: Russia is heavily reliant on the Western maritime industry (G7+ nations handle 93% of its LNG exports) and lacks sufficient vessels to independently navigate preferred routes, such as the icy Baltic Sea. This dependency makes Russia vulnerable to potential embargoes.
Implications of an Embargo: Given Russia's vessel situation, an LNG embargo could be impactful on Russia. The LNG market relies on long-term contracts which provide a buffer period that could allow Russia to profit before an embargo takes effect. A price-cap model during the transition could mitigate this issue.
Lack of Alternatives for Russia: The possibilities for Russia to redirect its LNG exports, particularly to China, are limited and costly, enhancing the effectiveness of potential Western sanctions.
Global Supply and Environmental Considerations: The global market is unlikely to experience shortages from a reduction in Russian LNG supply due to expanding developments worldwide.
Circumvention: The risk of Russia circumventing a price-cap through a shadow fleet, similar to what has occurred with oil, is unlikely in the case of LNG. The LNG fleet is technologically advanced, relatively new, and in high demand, meaning there are no old dismissed tankers available for co-option. Additionally, LNG is considered less environmentally damaging compared to oil.
EU's Policy Measures: Current EU discussions around the 14th package appear symbolic rather than substantive in relation to LNG. The focus is on banning technologies, and developments that are not yet operational rather than imposing direct restrictions on LNG imports.
Last updated