France's spending on Russian LNG surges to over €600mn this year

France's spending on Russian LNG surges to over €600mn this year
Europe is trying to wean itself off Russian gas imports, but unable to easily replace it, imports of Russian LNG to the EU have soared with France leading the way. / bne IntelliNews
By bne IntelliNews April 16, 2024

France's spending on Russian liquefied natural gas (LNG) surged to over €600mn this year, EU data reveals, Politico reports.

The increase comes as French President Emmanuel Macron becomes increasingly stringent in his support for Ukraine, recently calling on Nato members to be prepared to send troops to Ukraine if necessary. Yet, despite the public declarations to stand with Ukraine, France remains addicted to Russian gas and is importing more than ever.

In the first quarter of 2024 alone, France's LNG imports from Russia outpaced all other EU countries, a report by the Centre for Research on Energy and Clean Air (CREA) highlighted. The total paid to Moscow since January surpasses the €600mn mark, igniting calls from critics for France to curtail its burgeoning gas purchases.

Almost all (96%) of Russia’s maritime LNG exports were sent to EU countries including Australia, Norway, and Switzerland, which was up from 93% in 2022. EU purchasers account for more than 90% of Russian exports of liquefied natural gas in 2023, totalling €15.5bn.

After the Russian invasion of Ukraine, the EU undertook to completely renouncing imports of Russian gas by 2027, but soaring LNG imports make achieving that goal increasingly unlikely. Russian LNG imports have not been sanctioned.

Russian exports of gas to Europe fell after the invasion of Ukraine just over two years ago and fell further after the destruction of Nord Stream 1&2 pipelines. But significant amounts are still being delivered as the EU remains hooked on Russian gas that it is struggling to replace.

Piped gas deliveries have fallen but continue to EU countries that gained exceptions to the general embargo, including Hungary, Austria and Slovakia. In addition significant amounts continue to flow via Ukraine, albeit reduced from pre-war levels, and Turkey.

At the same time Russian exports of gas via LNG have soared. Increases in Russian LNG production between 2017 and 2022 led to a threefold increase in exports from 11mn tonnes per year (tpy) to 33mn tpy by 2022, of which half goes to the EU. In Europe, LNG's share of the demand mix has expanded from 12% ten years ago to more than 50%, and European regasification capacity is predicted to grow by another 48% by 2030.

“Between January and July 2023, EU countries bought 22mn cubic metres of LNG, compared with 15mn cubic metres during the same period in 2021 – a jump of 40%,” according to a recent report by Global Witness.

Russian production of natural gas, including associated petroleum gas (APG), rose in January by 6.7% year on year to 65.1bn cubic metres, RosStat data shows, marking its highest level since March 2022.

Russia was planning to triple its production again by the end of this decade to 100mn tpy and raise its market share from 8% to 20% at the same time, according to Deputy Prime Minister Alexander Novak. However, sanctions imposed by the US in December on LNG producer Novatek have effectively stymied plans to increase Russia’s LNG production further

Nevertheless, Europe remains Russia’s biggest buyer of LNG, accounting for half its total sales, with Spain, Belgium and France being by far the largest customers. EU ports receive in excess of 200 shipments per year from Russia’s Yamal LNG facility. The volume of imported LNG is now so significant that it has surpassed other forms of Russian fossil fuels sales to Europe.

French authorities defend its purchases saying they are critical to maintaining energy supply across Europe, citing a complex, binding long-term contract with Russia that is not easily dissolved. Germany has made the same argument for its continued purchases of Russian LNG by the energy company SEFE. Detractors argue that France, partly due to the influence of its national energy giant TotalEnergies, has not sufficiently explored alternatives to reduce the EU’s dependence on Russian gas.

Overall, the EU has dramatically reduced its reliance on Russian gas, cutting imports from 41% in 2021 to 8% in 2023. A comprehensive ban on Russian coal and oil by sea is already in effect. Nonetheless, attempts to decrease LNG imports have met with less success. Despite constituting a mere 5% of the EU's total gas consumption last year, member states spent more than €8bn on Russian LNG.

France's lead in both the volume and growth of Russian LNG imports in 2024, with a total of 1.5mn tonnes, sets it apart within the EU. Other major buyers like Belgium, Spain, and the Netherlands have expressed willingness to reduce purchases but emphasise the need for a collective action to avoid nullifying individual efforts.

French Economy Minister Bruno Le Maire defended France’s purchases, pointing to the necessity of a gradual reduction to prevent market shocks and price spikes similar to those that roiled the markets in 2022. Currently, as summer approaches there is a glut of gas on the market that has sent prices down to multi-year lows.

The situation underscores the EU's struggle to completely cut off Russian fossil fuel revenues, which remain a significant part of the Kremlin's budget, as Russia continues to find innovative ways to bypass sanctions and maintain its economic foothold in Europe.

 

 

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