How LNG imports test EU resolve to quit Russian fossil fuel
Context- Political pressure is building within the European Union to tackle the daunting challenge of closing a loophole in its efforts to stop using Russian fossil fuels: liquefied natural gas (LNG).
(Credits- Anadolu Agency)
What is the issue?
- In the year since Russia’s February 2022 invasion of Ukraine, the EU has placed sanctions on seaborne oil and coal imports from Russia.
- It has drastically cut reliance on Russian pipeline gas, despite not imposing sanctions on the fuel. But at the same time, EU countries have increased their overall purchases of Russian LNG, undermining the bloc’s pledge to end its use of Russian fossil fuels by 2027.
- Belgium and Spain nearly doubled their imports of Russian LNG in the 12 months since Russia invaded Ukraine.
- The appetite to address the issue is mounting within the 27-member European Union, but there is no agreement on how as the risks of inflating energy prices and inadvertently boosting Russian energy revenues further are considerable.
- Last week, member states collectively proposed that the bloc create a legal option to let countries stop Russian firms booking the infrastructure capacity needed to ship LNG to Europe.
- The proposal, which is part of a law containing broader rules on EU gas markets, must be negotiated with the European Parliament. The Parliament wants to go further, and has proposed an effective ban all EU imports of Russian gas.
Practical and legal questions
- Some EU officials, however, said the Parliament’s proposal was extremely unlikely to win political support from member states, in part because of legal issues.
- Klaus-Dieter Borchardt, a Senior Energy Advisor at law firm Baker McKenzie, said World Trade Organisation law only allows countries to ban a specific product from their market in certain limited circumstances.
- Dutch Energy Minister Rob Jetten told Reuters there was the practical difficulty that some countries cannot diversify their supplies quickly enough to cope with an immediate halt.
- The Netherlands has eliminated its Russian pipeline gas imports since the war and reduced, but not eliminated, Russian LNG imports.
To ban or not to ban
- Halting Russian LNG imports would be double-edged, analysts say.
- It could drive up European gas prices without necessarily reducing Russian export revenues, since LNG can easily be redirected to markets in Asia that have not imposed sanctions on Russia, CapraView Chief Analyst Tamir Druz said.
- “Unlike pipeline gas exports, which are essentially stranded in Russia, it will be much more difficult to reduce Russian revenues or global gas market dependence on Russian LNG,” he said.
- Enforcing a ban could also be challenging, given the difficulty of ruling out that LNG cargoes from other countries do not contain Russian volumes, especially via ship-to-ship transfer.
- Some EU diplomats expressed concern suppliers could be deterred from sending cargoes to Europe if they were required, for instance, to provide documents proving their LNG is not Russian, when buyers in other markets do not require such proof.
- With the LNG market currently tight, some analysts said Europe may struggle to replace Russian LNG with alternatives, threatening gas shortages if countries cannot fill the gap.
Conclusion- The move if approved in the European Parliament is expected to further increase uncertainty in energy markets. It could particularly increase prices of gas without any sure shot strategy of driving down revenues for Russia.
Syllabus- GS-2; International Relations
Source- Indian Express