Despite declarations of independence from Russian raw materials, the EU still imports significant amounts of LNG from Russia, accounting for about 6-7% of total gas imports. Will a complete cutoff of Russian gas supplies, including through Ukraine after 2024, affect price increases? The answer to this question will be crucial to the future of the European energy market.
Will EU gas prices rise without Russian LNG?
Geopolitical context - a few words about Russian gas
Since the start of the Russian invasion of Ukraine in February 2022, European Union countries have unanimously stated that Russia is an “unethical” business partner and it is imperative to abandon imports of raw materials from that direction, including natural gas.
Russia stops transporting gas to Europe
Did this actually happen? After the attack on Ukraine, Russia gradually cut off more gas lines to Europe, and after about six months, gas was only flowing through a pipeline crossing Ukrainian territory.
Currently, only gas is already flowing to Europe via Ukraine, through the “Brotherhood” pipeline (Veľké Kapušany interconnector) all indications are that as of January 1, 2025, this direction could also be deactivated, as the Ukrainian side has announced that it does not intend to extend the contract with the aggressor, for the transmission of gas through their territory. In 2024, about 16 bcm will flow to Europe from this direction, accounting for about 5% of all imports.
Energy prices in 2022: February and record August
After Russia's attack on Ukraine, gas prices for the next year's supply, on the TTF exchange (and other European exchanges) began to rise dynamically:
Reaching record levels in August of the same year:
As you can see, the August price apogee clearly correlates with the date of the strong restriction of pipeline gas imports from Russia. These events vividly demonstrate how sensitive the gas market can be and the importance of a good energy purchasing strategy.
A change in the trend toward Norwegian-American gas.
Europe has done its homework by increasing imports from the Norwegian direction and strongly intensifying LNG imports from outside Europe (mainly from the US):
Percentage Model - For Whom is The Solution?
Still, Russia has its fair share of the pie.
In 2023, 20.11 bcm of LNG flowed to the old continent, in 2024 by November the amount was already 19.28 bcm, so it can be assumed that the figure at the end of the year will be very similar (this represents about 6-7% of all gas imported by Europe). However, it is extremely interesting that the top 5 importers include as many as 3 European countries: France, Spain and Belgium. There is also a significant increase in the level of imports from the Russian direction of these countries compared to 2021.
Will gas become more expensive in 2025?
The impending end of pipeline gas supplies from Russia and continued LNG imports raise questions about market stability. Is Europe ready for the limited availability of raw material from Russia, and how will this affect prices in the coming years?
How much gas goes from Russia to Europe?
In 2023, gas imports from Russia (via pipelines and LNG) were at about 14.8% of total imports.
Ukraine declares that it does not intend to continue the contract allowing gas exports through its territory to southern Europe, and after rumors circulate that a small amount of capacity has been reserved for next year's 2025, let's stick to the current facts and assume that the shipments will not continue. This shortage is bound to have quite an impact on the supply situation in Austria, the Czech Republic and Slovakia.
That's about 5% of Europe's total gas imports. Another 6-7% is LNG imports . Together, then, Russian gas imports will be at about 11-12% at the end of 2024 . That's a sizable amount that, with such a sensitive market, can shake up prices.
At this point, can we assume Europe's complete abandonment of gas imports from an ethically questionable partner?
Read also: How to Buy Energy in Uncertain Times?
New sanctions package without Russian LNG
Despite sanctions on Russian crude, LNG is still doing well. At the time of writing on 16/12/2024, the 15th package of sanctions against Russia was approved, but LNG imports were not included in this package of sanctions .
So what about energy prices in 2025?
In December 2024 we are seeing declines in European exchanges due to considerable wind and warming. So is this a good time to hedge prices for the coming periods? It is certainly worthwhile to support yourself in making such a decision with the right buying tools. The market has been reckoning with the limited availability of Russian gas for a long time, but does it assume that there may not be any in Europe?
- With such a scenario, at the same time, for example, more LNG terminals will be launched in the US and exports to Europe will grow?
- Or has Qatar not said the last word?
- Will gas consumption grow in Europe (e.g., due to the need to stabilize the energy system by incorporating gas fired power stations)?
- Will it decrease (due to economic weakness in Germany, for example)?
- Unfortunately, you have to pay more for this approach, because the risk of variable volume is transferred to an energy supplier (who very often secures itself in a contract by providing volume tolerance - that the hedged price will be only if the consumption is within a spread of, for example, +/- 20% of the forecast, otherwise the customer will have to pay additional costs).
The price of gas for year 2025 on the Dutch TTF exchange settlement rate as of 16/12/2024:
We will try to answer these and other interesting questions in our upcoming articles. We invite you to read, other articles on this topic:
Author: Filip Pienkowski - Energy Procurement Consultant
