Europe’s plans to replace Russian gas are deemed ‘wildly optimistic’ — and could hammer its economy

A drilling rig at a gas processing facility, operated by Gazprom.

Maxim Shemetov | Reuters

The European Union’s best shot at replacing Russian gas imports this year is likely to miss the mark, analysts predict, exerting further pressure on the region’s economy.

The EU plans to replace two-thirds of Russian gas imports by the end of the year, as Russia’s war in Ukraine continues to wage on.

The shift away from the country’s gas supplies became even more urgent after the country’s state-backed Gazprom reduced flows to Europe by 60%, citing a delay to repairs on the Nord Stream 1 pipeline that runs to Germany beneath the Baltic Sea.

The European Commissioner for Energy, Kadri Simson, will meet with EU energy ministers on Monday to discuss potential coordinated measures, including demand reduction and contingency plans should the situation deteriorates further.

However, the EU’s current plan to replace Russian gas looks to fall short.

In 2021, the EU imported around 155 billion cubic meters (bcm) of natural gas from Russia. The bloc’s proposed gas replacements by the end of 2022 – which include LNG (liquefied natural gas) diversification, renewables, heating efficiency, pipeline diversification, biomethane, solar rooftops and heat pumps – amount to around 102 bcm annually, according to data from the EU Commission’s REPowerEU, aggregated in a recent report from economic consultancy TS Lombard.

Christopher Granville, managing director for EMEA and global political research at TS Lombard, said in the report that the European Commission’s aims to replace Gazprom’s gas this year look “wildly optimistic.”

“Apart from implementation timings of commissioning German LNG-receiving terminals, Russia is also an important supplier of LNG, underlining the challenge for Europe of sourcing adequate LNG supplies,” Granville said.

The share of Russian gas imports to the EU has already decreased from 45% in April 2021 to 31% in April 2022, with the share of pipeline gas alone falling from 40% last year to 26% this year.

However, total LNG imports have hit record levels, with 12.6 bcm imported in April alone, representing a 36% year-on-year increase despite the reduced share coming from Russia. This would indicate that Europe’s diversification efforts are beginning to bear fruit.


Energy rationing

“With the G-7 now having decided to prohibit Russian oil imports, it’s likely that Russia may broaden the scope of its cutoff of natural gas to other EU nations as a retaliatory measure,” Kiuchi said.

“In that case, one might even suppose that the EU will try to make the first move and stay ahead of Russia, by declaring a ban on Russian natural gas imports.”

By bringing natural gas into the realm of EU sanctions, the euro zone economy could see a sharp slowdown, with Germany’s growth rate turning negative, Kiuchi suggested.

More broadly, the International Monetary Fund has indicated that escalations to existing sanctions against Russia from major industrialized nations — particularly if entailing severe restrictions to Russian energy exports — could cascade into even steeper energy price increases, deteriorating corporate and household sentiment and financial market disruption.

The IMF projected that such a sequence of events may depress its global growth forecast by as much as 2%.

Correction: This story has been updated with the correct figure for EU imports of Russian natural gas in 2021.

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