EU Agrees on New Sanctions Targeting Russian LNG

The European Union has recently agreed on a new set of sanctions against Russia, marking a significant move by targeting liquefied natural gas (LNG) supplies for the first time. This decision comes amidst the ongoing war in Ukraine, now in its third year, and represents the 14th package of sanctions imposed since February 2022.

For the first time, the EU’s sanctions will impact LNG supplies, a critical energy source that several member states continue to purchase from Russia. The sanctions, finalized after extensive negotiations among EU ambassadors, faced delays due to reservations from countries like Hungary and Germany. Germany’s concern was particularly focused on the “no Russia clause,” which restricts companies from sending sensitive goods to the Kremlin.

Delicate Timing on the Battlefield

The new sanctions package arrives at a critical moment, as Russian forces attempt to leverage their momentum for further territorial gains in Ukraine. The sanctions aim to restrict Russia’s economic resources, thereby hindering its ability to finance the ongoing war.

While the sanctions stop short of a full import ban like those previously placed on coal and seaborne oil, they introduce significant restrictions. EU companies will still be permitted to purchase Russian LNG but will be banned from re-exporting it to other countries, a practice known as trans-shipment. This measure is intended to curb Russia’s ability to profit from LNG exports indirectly.

According to the Centre for Research on Energy and Clean Air (CREA), the EU paid €8.3 billion for 20 billion cubic meters (bcm) of Russian LNG in 2023, accounting for 5% of the bloc’s total gas consumption. Key entry points for Russian LNG included Belgium, France, and Spain, with 22% (4.4 bcm) of these supplies being trans-shipped globally.

Broader Implications for Russia’s LNG Industry

The West plays a leading role in cargo insurance and shipping services, with G7 countries handling 93% of Russia’s LNG exports in 2022, valued at €15.5 billion. The new EU sanctions aim to disrupt this lucrative business and limit Russia’s ability to finance its military operations.

The sanctions also target three Russian LNG projects that are not yet operational: Arctic LNG 2, Ust Luga, and Murmansk. Energy analyst Petras Katinas from CREA notes that while the trans-shipment ban complicates Russia’s gas exports, a complete ban on imports would exert significant pressure on Russia’s Arctic gas business. Without access to nearby EU ports, the economic viability of gas transportation on special icebreaker LNG tankers would be severely challenged.