Russian gas supplies to Europe—via pipelines and as LNG—are under increasing threat. On December 20, pipeline gas deliveries to the EU might stop due to U.S. sanctions against Gazprombank. Meanwhile, the EU is preparing a new sanctions package to ban LNG imports from Russia. What consequences might Gazprom, Russia, and the EU face if supplies are entirely halted?

Last week, the U.S. imposed blocking sanctions on Gazprombank. European buyers of Gazprom's gas are required to pay in rubles through this bank. If European businesses fail to negotiate exceptions with the U.S. by December 20—the deadline for ceasing operations with the bank—this will halt Russian gas deliveries.

In 2022, a presidential decree shifted payment for Russian gas from "unfriendly" countries to rubles. Payments can only occur through one scheme: European buyers transfer funds in euros or dollars to Gazprombank, which converts the currency to rubles and transfers the amount to Gazprom. There is no alternative payment method.

Russian LNG, which has made Russia the second-largest supplier to the EU in recent months, is also at risk. The EU is drafting its 15th sanctions package, potentially including a ban on Russian LNG.

Pipeline Threats
European companies are expected to push for U.S. exceptions to the sanctions, says Igor Yushkov, an expert at the National Energy Security Fund and the Financial University under the Russian government. The U.S. has a history of granting such exceptions, either temporary or permanent.

"If they fail to secure an exception by December 20, U.S. sanctions, which have extraterritorial reach, will force European companies to comply and halt payments to Gazprombank. At that point, the continuation of Ukraine’s transit agreement with Gazprom beyond January 1 will no longer matter. Deliveries to Slovakia, Austria, and Hungary will likely cease," Yushkov explains.

Turkey, Serbia, and Moldova—being "friendly" countries—could bypass Gazprombank and continue payments through alternative arrangements. However, European countries would need to negotiate a workaround with Russia.

Hungary is better positioned due to its relationship with Russia and possible ongoing negotiations, Yushkov suggests. Hungary also has the technical capacity to receive gas through the "Turkish Stream" pipeline, unlike Slovakia and Austria.

Potential Adjustments
European buyers might already be lobbying Gazprom to revise the payment system. Without U.S. exceptions, Russia would need to accommodate such changes to maintain trade.

In a worst-case scenario, Gazprom could lose up to 25 billion cubic meters of annual gas deliveries via Ukrainian pipelines and the Turkish Stream. However, 10 billion cubic meters of supplies to Greece, North Macedonia, Bulgaria, Romania, and Hungary via the Turkish Stream might be preserved. This could happen if Russia agrees to sell gas to Turkish and Serbian intermediaries for resale to Europe—a model already employed for Bulgaria.

"Turkey's ambition to become a gas hub could unexpectedly materialize under these conditions. If Russia agrees to alternative payment systems and permits re-export, Turkey could profit," Yushkov notes.

Nevertheless, Gazprom faces potential losses of up to 25 billion cubic meters of gas, which could necessitate production cuts, affecting the Russian budget due to reduced taxes and export duties. While these losses are smaller compared to the 130 billion cubic meters lost earlier, they remain significant given Russia's budget deficit.

LNG Prospects
Experts doubt the EU will impose a full ban on Russian LNG in the near term. "Even if the EU includes a ban in the 15th sanctions package, its implementation might be delayed until 2026," Yushkov predicts.

Sergey Tereshkin, CEO of Open Oil Market, adds that a complete LNG ban is unlikely before the end of the winter season (March 31), as Russian LNG helps Europe mitigate supply risks. For instance, France imported 4.98 million tons of Russian LNG in the first ten months of 2024, followed by Spain (4.18 million tons), Belgium (2.20 million tons), and the Netherlands (1.05 million tons)—a total of 12.4 million tons.

The uncertainty surrounding both pipeline and LNG supplies underscores the economic and strategic complexities for all parties involved.


Translated using ChatGPT

Sourse; vz.ru/economy/2024/11/29/1300522.html