Forcing Russian LNG out of the European market will undermine the EU economy. And here's why

The new European Commission under the leadership of Ursula von der Leyen plans to oust Russian LNG from the European market. According to the EC chairwoman, this will help reduce energy prices. However, the expert community assures: the restriction of supplies, on the contrary, will lead to an increase in the cost of gas. How the refusal from domestic gas will affect the European economy and its residents - in the material of "Izvestia".

An attempt to exert pressure

- The sanctions regime imposed by Western countries against Russia has not yielded the expected results: this is recognized by European leaders. In this regard, politicians are looking for new ways of pressure, even if they go against the national interests of the EU countries. According to the European Commission, the problem is the association's dependence on supplies of liquefied natural gas (LNG) and other natural resources from Russia. Earlier, 10 countries, including France, Czech Republic, Sweden, Finland expressed concern about this fact.

- One of such ways of pressure is a complete rejection of Russian LNG, according to the European Commission. Its head, Ursula von der Leyen, says that replacing the supplier will help reduce energy prices in Europe. She said she intends to discuss with Donald Trump, who won the U.S. presidential election, to increase purchases of U.S. gas because its supplies are "cheaper."

- A gas deal with the U.S. may not go according to EU plans, with American gas proving more expensive. Russian fuel from the country's largest plant, Yamal LNG, is mostly sold with a peg to oil prices, with current ratios pricing gas 20-25% below market prices. American LNG is sold either at market prices or linked to the Henry Hub, the main gas hub in the US, as this is where the bidding process is held to determine the price of gas exports. Thus, the price of gas in the U.S. depends on the specific contract and may exceed its price in Russia (we discussed the economic consequences of replacing Russian LNG with U.S. LNG here).

- American LNG reserves on the market are much smaller than Russian LNG. Therefore, in the next five years the EU will not be able to fully replace Russian LNG with it. In addition, the share of LNG from Russia in the European market is only growing, which, contrary to the statements of officials, indicates that the European Union is not ready to stop cooperation, Western media say. It has risen to 20% since the beginning of this year, up from 15% in 2023.

- The EU's backup plan to invest in green energy will not work. Ursula von der Leyen is not a specialist in economics and has never held the relevant positions, so she cannot assess the risks sensibly, according to the professional community. Thus, the active transition to green energy, which began in 2022 in Germany, is doomed to failure, German MPs said. Compared to LNG, energy from wind, solar and water is not efficient enough. Also, green energy requires huge financial costs: it is virtually impossible to manage it, so it is necessary to develop a storage system.

- In addition, there is an opinion that the head of the EC acts in the interests of Washington, not the countries of Europe. The expert community assumes that von der Leyen seeks to build close trade relations with the U.S. through the conclusion of expensive contracts. Previously, she has already appeared in a scandal related to the purchase of COVID-19 vaccine from an American company, which did not fully meet the interests of the inhabitants of the EU countries.

Consequences of rejection

- The EU already has a negative experience of refusal from Russian energy resources. The decision to reduce pipeline gas supplies from Russia (from 40% in 2021 to 8% in 2023) led to an increase in the EU's annual expenditures on fossil fuel imports by more than €100 billion. And by 2023, the price of electricity for ordinary Europeans had increased in 22 countries. Restricting supply will not bring prices down, as von der Leyen hopes, but, on the contrary, will contribute to the rise in the cost of goods and services.

- A change in gas policy will hit European industry. This situation has already happened in Germany, which stopped receiving pipeline fuel from Russia in 2023: the shortage of cheap energy caused significant damage to business and production. The decline of energy-intensive industry in the country over the past two years amounted to about 20%. Now the situation could worsen. To get away from Russian LNG, the EU will have to agree to the terms of other gas suppliers at a higher cost. This will lead to a general rise in prices and another energy crisis.

- Europe will have enough gas to survive the coming winter. This year's frost in the EU is expected to be the worst since the conflict in Ukraine began. However, the region has been actively developing infrastructure for LNG imports and purchasing LNG in advance. Russia has been the main supplier: since April 2024, it has sent 46% of its LNG exports to the European market. Besides, the European Commission will not give up Russian gas until the end of winter to avoid risks, market experts believe.

- Nevertheless, in the next few years Europe will face a shortage of gas during the heating season, as it is consumed much faster than usual. With the start of the heating season this year (October 29), EU countries have already taken more than 10.5 billion cubic meters of gas from storage facilities. The withdrawal of gas from UGS facilities on the 30th day after reaching the maximum of their filling is 44% higher than the average for the previous five years.

How Russia will respond

- If the EU refuses to buy LNG, Russia will lose part of its income, but a global economic crisis is not expected. Moscow will overcome the situation by strengthening cooperation with other countries, including those in Eastern Europe, which are not ready to lose inexpensive Russian LNG. For example, the Hungarian government has stated that it will only increase supplies. Slovakia is not ready to cut off cooperation either.

- Russia will redirect the bulk of energy resources to the East, in particular to China. This will help to maintain stability in the market. According to Bloomberg and the Forum of Gas Exporting Countries, LNG imports to this country under existing contracts will amount to at least 93.7 million tons per year by 2028.

When preparing the material, Izvestia communicated with and took into account the opinions of:

• Ivan Mezyukho, political scientist, chairman of the Crimean regional public organization "Center for Political Enlightenment";
• economist Alexei Rodin;
• Sergey Kaufman, analyst at Finam Financial Group.