Phasing out Russian gas will continue – EU prepares for the coming winter
The availability and price of natural gas (methane) have been at the heart of Europe's response to Russia's aggression in connection with the war in Ukraine. A massive military invasion of Ukraine began in February 2022, but the energy war started already in summer 2021 as Russia manipulated gas trade to the European Union.
The price impacts of the conflict were at their highest in winter 2022/23. Since then, gas and electricity prices in Europe have returned to at least a reasonable level. However, there are still challenges in adjusting the markets.
In 2021, 45% of the gas imported to Europe was Russian. Intensive development of network and import infrastructure, targeting of gas trade to the west, and successful demand restraint measures have reduced that share to around 15%, while correspondingly, the income received by Russia from gas sales has decreased, also affecting the country's on-budget economy. The EU's main sources of gas imports are Norway and the United States.
Sanctions negotiated
So far, no direct sanctions have been imposed on Russian gas imports. However, the 14th package of sanctions under negotiation in the EU is expected to open the door in this respect. As imports of pipeline gas have shrunk, imports of Russian liquefied natural gas (LNG) have increased. In the first instance, the sanctions could be targeted at LNG. The REPowerEU programme aims to end dependence on Russian gas by 2027.
The recently adopted EU Gas Regulation also allows Member States to impose national, temporary bans on the supply of Russian or Belarusian gas to European networks in a more straightforward manner.
Prospects and preparedness for winter 2024/25
Interestingly enough, Russian gas has been imported into the Union through Ukraine throughout the war that began in 2014. Cutting gas flows for various reasons has been a threat for a longer time, at least since the gas dispute 2005-2006. However, the transit agreement between Gazprom in Russia and Naftogaz in Ukraine is coming to an end by 31 December 2024, when imports of Russian pipeline gas into Europe will at least become more difficult.
The European Commission estimates that there will be enough alternative gas sources and routes available in winter 2024/25 to ensure the gas supply in the EU Member States. The filling rate and usability of stocks are also key factors. After winter 2023/24, stocks were record high: the filling rate was 59% at the beginning of April. The end of gas transmission through Ukraine may slow down the completion of storage facilities in 2025.
As the geopolitical situation is tense in Europe, the surveillance, protection and resilience of critical infrastructure are emphasised. Cooperation in this respect is developed both among individual countries and more broadly, for example in the EU and NATO.
The International Energy Agency IEA has stated that the gas stocks in the West are generally at a good level. Prices on the world market have fallen below pre-crisis levels. Demand is expected to grow at least moderately, mainly depending on the development of the Asian market. Uncertainties are associated with the desired increase in the global LNG liquefaction and export capacity. The geopolitical situation is contributing to aggravating the market.
From the perspective of long-term development, it is significant that China and Russia have not made progress in developing trade in pipeline gas.
Finland quickly dismantled Russian pipeline gas - minor imports of LNG are to be banned
As a result of Gazprom's trading requirements, Finland discontinued imports of Russian pipeline gas already in May 2022. Russian gas cannot be imported into Inkoo's large LNG terminal (FSRU) within its terms of use. In addition, there are three smaller-scale LNG terminals in Finland, of which only Hamina is connected to the gas transmission network, and the terminals in Pori and Tornio mainly serve the needs of local industry. LNG is still imported from Russia to the Pori and Tornio terminals – long-term import agreements, that are legally binding on companies, also maintain trade.
The breach of the Balticconnector pipeline between Finland and Estonia in October 2023 - due to an external factor - caused us to rely on imports of shipped LNG for the winter months. Thanks to the determined efforts of Gasgrid Finland and other actors in the sector, the gas market was uninterrupted throughout the winter. In April 2024, Balticconnector was repaired and is again in market use.
The geographical distribution and nature of our gas imports have changed radically. Russian pipeline gas has been replaced by Western LNG. According to foreign trade statistics, 65% of gas imports in the last quarter of 2023 came from the United States, 23%from Norway and 7% from Russia.
The Ministry of Economic Affairs and Employment is currently appointing a working group to prepare a comprehensive ban on Russian gas imports. The legislative proposal is due to be given next winter. At the same time, Finland supports the imposition of European sanctions on Russian gas in its various forms.
Riku Huttunen is the Director General of the Energy Department of the Ministry of Economic Affairs and Employment