Monday, July 15, 2024
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New EU sanctions target Russian LNG but a full ban is not yet in sight

The European Council has adopted the 14th package of sanctions against Russia to further reduce its sources of revenue and capacity to wage war against Ukraine.

The package contains important new energy-related measures targeting liquified natural gas (LNG) and measures targeting vessels which support Russia’s war.

As regards LNG, the package prohibits all future investments in, and exports to, LNG projects under construction in Russia, such as new terminals like Arctic LNG 2 or Murmansk LNG, thus limiting the future expansion of Russian LNG capacities. Indeed, despite extensive export bans already in place, Russia still relies on key components manufactured by EU companies to finalise the construction of its new LNG terminals. EU operators will now have to conduct their due diligence to verify that the goods and services they are exporting are not for use in Russian LNG facilities under construction.

From now on, it will also be prohibited, after a transition period of 9 months, the use of EU ports for the transhipment of Russian LNG. Moreover, the package prohibits the import of Russian LNG into specific terminals which are not connected to the EU gas pipeline network. This will complement the measures under the Decarbonised Gases and Hydrogen package which allow Member States to limit the import of Russian gas into their national network, in line with the REPowerEU objectives.

For the first time, the EU has also adopted a measure targeting specific vessels, including those transporting LNG, which will be banned from accessing EU ports. According to the European Commission’s press statement, this will increase costs for Russia, which will no longer be able to use EU infrastructures to optimise the transport of its LNG across the world. It will need to find alternative transhipment facilities, thereby increasing its logistical costs.

In this first round of listings, the EU has placed 27 vessels on this list, including those transporting military equipment for Russia, or transporting stolen Ukrainian grain. The list can be updated as regularly as needed to address the ever-evolving involvement of those vessels helping Russia to wage war against Ukraine.

Gas supply to the EU guaranteed, Commission says

However, the European Commission reminded us that these LNG-related measures are designed to continue ensuring the security of gas supply to the EU: the transhipment ban only affects Russia’s logistic costs to export LNG, but it does not prohibit (or target in any way) imports into the EU or anywhere else. LNG supplies to the EU will remain unaffected.

At the same time, prices are not expected to be affected as LNG is a global market where prices are determined by the interplay between demand and supply globally and global supply would not be affected by this transshipment ban.

A full ban on LNG is still distant

The adoption of this 14th package of sanctions falls short of what were the requests made by the Ukrainian organisation Razom We Stand which, earlier in June, was urging EU countries to ensure a total and permanent embargo on Russian fossil fuels. According to the association, since February 2022, Russia’s revenues from fossil fuel exports have surpassed 675 billion euros and many countries worldwide are still purchasing Russian LNG, pipeline gas, crude oil and oil products.

Together with other 64 organisations, including some from Central and Eastern Europe, like Hungary’s Clean Air Action Group, Moldova’s Terra-1530, Romania’s Expert Forum, Czechia’s CEE Bankwatch Network, Slovakia’s Klíma ťa potrebuje and the Prague-based Association for International Affairs, a letter was sent to EU and world leaders asking, among other things, for comprehensive sanctions against Russian LNG exports, starting with a ban on transshipments in EU ports. The latter has been included in the latest package of sanctions, but a consensus on a full ban has not been reached yet.

Discussions over a full ban have been ongoing almost since the beginning of the war, with Member States presenting a not united front. First of all, Hungary has always opposed such a ban and more recently, Germany.

Hungary’s Paks receives full exemption from the measures

Hungary’s Minister of Foreign Affairs and Trade, Péter Szijjártó, said Hungarian interests have been protected as the country’s nuclear plant in Paks has received a full exemption from the measures, allowing works on its expansion to speed up.

Speaking in Luxembourg, Minister Szijjártó defined the adoption of the 14th package as “the continuation of an utterly failed strategy”.

“We’ve reached the objective of having it stated in this directive that the construction of the new Paks nuclear power plant and all its processes, stages and elements are completely exempted from sanctioning measures,” he said. “This means that the European companies participating in the investment — and we have many French, German and Austrian companies — will not have to apply for permits from the authorities of Member States”.

However, the true impact of this latest package remains to be seen. Especially considering that it will take place in March 2025, thus allowing another winter season to be fully exploited.

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