EU continues push to displace Russian gas, U.S. LNG poised to fill gap

The EU is continuing to take steps to end its dependency on Russian pipeline gas and LNG.

European Commission President Ursula von der Leyen said the era of depending on Russian fossil fuels is over, “once and for all,” following her re-election in June.

Two years ago, the European Commission announced the ‘RepowerEU’ initiative, designed to cut Russian gas consumption to zero following Russia’s invasion of Ukraine.

As a result of the initiative, Russia’s share of EU gas imports fell from 45% in 2021 to 15% in 2023. But the remaining 42.9 bcm per year of imported Russian gas has proved difficult to displace.

Eliminating Russian gas imports in the EU has been challenging for several reasons. Countries such as Austria and France are tied into long-term contracts with Russian gas providers, which are difficult to terminate.

Many countries, especially in Eastern Europe, are concerned about supply security, due to challenges in accessing LNG imports. Meanwhile, a 2022 EU deal with Azerbaijan to double gas supplies became a back door for Russian gas imports after Azerbaijan subsequently secured a supply deal with Russia.

In May, the European Commission met energy ministers from EU member states to discuss how to further reduce dependency on Russian gas. The Czech Republic and German delegations — supported by 10 other countries — proposed creating a high-level working group to address the technical and regulatory challenges of eliminating the remaining Russian oil and gas imports from Europe.

Additional measures are now underway, with funding secured for an Austria-Germany pipeline that will enable Austria to import nearly one third of its gas needs from LNG terminals in Germany.

As well, the EU is expected to let a transit agreement for Russian gas imports via Ukraine expire when it comes up for renewal in early 2025.

While other countries in the European Council have been pushing for a full ban on Russian LNG imports, the council has not been able to reach an agreement on the proposed ban. Instead, in June the EU approved a sanctions package, which bans re-exports of Russian LNG from EU waters and prohibits new investments and services in LNG production projects in Russia.

The European Council working group will evaluate additional policies in coming months to fully phase out Russian gas imports by 2027.

“We need larger and deeper coordination in order to get really independent from Russia,” said Belgian Energy Minister Tinne Van der Straeten after the last meeting of EU energy ministers.

Displacing imports

Of the 42.9 bcm of Russian gas imported to the EU in 2023, 25.1 bcm arrived via pipeline and 17.8 bcm arrived as LNG and there remains a high degree of uncertainty amongst analysts over future Russian supply.

If Russian gas is, in fact, fully phased out from Europe, the extent to which it could be replaced by LNG imports from other locations depends on several factors — the economic performance of the region, weather, and the speed at which EU energy efficiency and fuel-switching programs are enacted.

Analysts believe that the EU will have demand for an additional 44 bcm of imported gas over 2024 levels by 2026. On the other hand, the recent EU Agency for the Cooperation of Energy Regulators (ACER) report estimates that the EU will be over-contracted by 30 bcm of LNG from 2027.

So far, much of the gap left by displaced Russian gas in Europe has been filled by U.S. LNG. The U.S. exported 56.2 bcm of gas to the EU in 2023, up from 22 bcm in 2021.

The proximity of North America, the 50 bcm increase in European regasification capacity over the past two years, and the projected 106 bcm growth in U.S. liquefaction capacity by 2028 suggest the United States will fill the LNG gap.

The extent largely depends on the price differential between Europe and northeast Asia.

Forecasts of LNG demand vary widely even before factoring in displaced Russian gas demand. BP’s current trajectory sees the EU and UK having 199 bcm of term and spot imports in 2030 under its current trajectory scenario, and 146 bcm under a net zero scenario.

Under its central scenario, Shell believes the region will have demand for around 97 bcm of spot LNG imports on top of its term supply in 2025, and 69 bcm in 2030.