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The EU has taken aim at Russia’s liquefied natural gas (LNG) sector for the first time in its latest round of sanctions against Moscow, yet experts say the measures are unlikely to dent Russian gas exports.

This week, the European Council adopted its 14th package of Russian sanctions, introducing a range of new energy-related restrictions.

Following a nine-month transition period, the EU will prohibit the use of its ports for the transshipment of Russian LNG to third markets outside the bloc, such as China, India and Turkey.

The EU says the move aims to increase Russia’s logistical costs and prevent the unloading of LNG from its large icebreakers to smaller, cheaper vessels for onward transport to the rest of the world.

“It will need to find alternative transshipment facilities, thereby increasing its costs,” the EU says.

Brussels has also immediately banned European firms from investing or exporting goods and services to Russian LNG facilities under construction, specifically targeting Novatek’s Arctic LNG 2 and Murmansk LNG projects.

The EU hopes these measures will disrupt the supply of key components and reduce Russia’s long-term output, particularly as Moscow aims to capture 20% of the global LNG market by 2035.

The measures mark the first time the EU has targeted Russia’s LNG sector since the Ukraine crisis erupted, aligning with the bloc’s goal of phasing out Russian fossil fuels by 2027.

But experts believe the sanctions are unlikely to have a significant effect on Russian export volumes in the near term.

James Willn, a partner at law firm Reed Smith, says Russian gas imports into Europe have been the “elephant in the sanctions room for some time” as the EU remains heavily reliant on Moscow.

“It must be seen to be making some efforts to curtail what is a major source of revenue for Russia by bringing in these latest transhipment restrictions,” says Willn, part of Reed Smith’s energy and natural resources group.

“The EU hopes it will make them more difficult and therefore more expensive, denting the actual revenue Russia receives from the sales,” he tells GTR. “The reality is that it’s unlikely to reduce Russian gas exports.”

He says Russia has approximately  nine months to find alternative methods to transport its LNG without using EU ports.

The EU’s latest round of sanctions comes amid growing concern over the bloc’s role in facilitating Russian energy trade.

In 2023, Russia reportedly earned profits of €8bn on LNG exports to the EU. According to campaign Group Global Witness, only a quarter of this amount was for transshipment, with the rest having been used by EU member states.

 

LNG cap?

Booming Russian gas imports have spurred calls for an LNG price cap, similar to the scheme imposed on Russian oil by the EU, US and allied nations since December 2022.

In an April paper, the Centre for Research on Energy and Clean Air (CREA) said the EU should introduce an LNG price limit of €17/MWh, which would both encourage Russia to continue exporting the gas while also severely reducing Moscow’s energy revenues.

CREA estimates such a cap would have cut Russia’s total LNG export revenues by 60% last year, equivalent to €10bn.

Yet the pre-existing oil price cap has faced challenges, with GTR reporting in recent weeks that UK insurers were found to have covered eight shipments of Russian crude sold above the US$60 mark.

Circumvention of western sanctions and export controls has become a key area of concern for Brussels, with Russia finding ways to purchase US and EU-made dual-use goods through a complex web of supply chains that often use companies located in China as well as states in Central Asia.

To continue trading oil, in the face of the price cap, Russia has also worked with other heavily sanctioned states to develop a shadow fleet of ageing tankers that sail without western insurance.

According to S&P analysis, published last week, the number of shadow tankers engaged in trading Russian oil has increased by a third since early 2023, to 591, a large portion of which are tied to entities in Russia, Iran and Venezuela.

In its 14th package of sanctions, the EU revealed it would, for the “first time”, start sanctioning specific vessels that help transport Russian miliary goods or products such as stolen Ukrainian grain, components for LNG projects, or those found transhipping Russian gas.

In all, 27 tankers were designated this week. The EU says the measure would also allow it to target tankers that are part of “Putin’s dark fleet” which circumvent the EU and Price Cap Coalition’s caps.