As the third anniversary of the Ukraine war approaches, the US and its European Union (EU) allies are tightening the noose on Russian energy trade through fresh sanctions. While the outgoing Joe Biden administration sanctioned scores of companies that were aiding Russia in energy exports, some EU countries have also called for the 27-nation bloc to impose a blanket ban on pipeline gas and liquefied natural gas (LNG) imports from Russia.
However, the EU continues to rely on Russian LNG imports, with reports highlighting that a record amount of LNG was imported from Moscow last year. Additionally, two EU shipyards were reportedly involved in repairing Russian ice-class tankers and providing docking facilities.
The fresh US sanctions may force India and China, two of the largest consumers of Russian oil and gas, to seek their demand from alternate routes.
EU’s dependence on Russian LNG
After Russia invaded Ukraine in February 2022, the EU, along with G7 countries, introduced price caps on Russian crude oil ($60 per barrel) and petroleum products. Additionally, seaborne imports of Russian crude oil and refined petroleum products were prohibited to limit funding for Moscow's war efforts.
However, gas has remained outside of the bloc’s sanctions, even as the EU aims for a complete Russian fuel phase-out by 2027. According to a report in The Guardian, Europe bought a record amount of LNG from Russia last year, with ships carrying 17.8 metric tonnes (mt) of LNG docking in European ports in 2024 — up by more than 2 metric tonnes compared to 2023.
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The record LNG import comes even as the EU has sought to reduce pipeline gas supply from Russia, which accounted for 40 per cent of its gas imports before the Ukraine war. Beyond consumption, some EU shipyards have also played a key role in assisting Russian tankers reaching European shores.
According to a report in The Financial Times, Damen shipyard in France’s Brest and Fayard A/S in Denmark serviced 14 out of the 15-strong fleet of Arc7-class tankers that ship from Russia's Yamal LNG plant. These specialised tankers are designed to transport LNG from the Yamal LNG plant through harsh Arctic conditions.
European demand for LNG remains high, especially during the winter months. Russian LNG from Yamal offers competitive pricing and shorter delivery times compared to alternatives, making it an attractive option for European importers.
In 2024, the EU imported nearly 82.7 million metric tonnes (mt) of LNG, almost half of which was sourced from the US, according to S&P Global Commodity Insights data. Of the total, the EU imported about 14.9 million mt of Russian LNG, more than the 13.9 million mt sourced in 2023.
US sanctions to have little impact on EU
The latest US sanctions target smaller Russian energy projects such as Gazprom’s Portovaya LNG and Novatek’s Vysotsk LNG. Larger facilities like Yamal LNG have been spared for now, allowing the EU some breathing space.
In a LinkedIn post, Anne-Sophie Corbeau, global research scholar at the Centre on Global Energy Policy at Columbia University, said the US targeting relatively small Russian LNG facilities appeared to be a ‘middle ground’ and a move to safeguard European and Japanese interests.
If the incoming Donald Trump administration goes ahead with sanctioning larger Russian LNG facilities, it would raise some risks for the EU bloc. Trump has already threatened tariffs if Europe doesn’t buy more American energy. Even then, the Russian LNG Association expects that the new LNG capacities slated to be launched in the US and Qatar in the next two years will fulfill the EU’s energy demand, according to a report in S&P Commodity Insights.
Additionally, the EU is looking to ban the transshipment of Russian LNG through its ports, effective from March 2025. While analysts cited by S&P Commodity Insights suggest that the ban shouldn’t have any effect on European LNG imports, the effects could be felt more in Asia.
How it can affect India?
Russia has two main options for shipping LNG to Asia. The first is the longer route through the Suez Canal, which takes approximately 63 days to reach China and 45 days to reach India. The second option is the shorter Northern Sea Route (NSR), which can take around 33 days to reach China. However, non-ice class vessels must rely on European ports for transshipment during the colder months (June to November), when the NSR is not accessible due to ice conditions.
Without access to EU transshipment ports, Russian LNG exporters may face difficulties in reaching Asian markets, including India. They might need to find alternative transshipment points or adjust shipping routes, potentially increasing costs and transit times. The ban could lead to delays or reduced volumes of Russian LNG reaching India, especially during winter months when Arctic conditions make direct shipping challenging.
The EU’s transshipment ban proposal could also backfire, as India has been a major supplier of refined discounted Russian oil. According to a Centre for Research on Energy and Clean Air (CREA) report, Europe’s diesel and jet fuel imports from India have almost doubled since the outbreak of the Ukraine war.
“Capitalising on the refining loophole, India has now become the biggest exporter of oil products to the EU. In the first three quarters of 2024, exports to the EU from the Jamnagar, Vadinar (in Gujarat), and new Mangalore refinery—which are increasingly reliant on Russian crude — saw a 58 per cent year-on-year rise,” the report mentioned.
Adding to this, the latest US sanctions may also impact India. According to a Bloomberg report, New Delhi may reject oil tankers sanctioned by the US, which includes two Indian tankers, for their role in moving Russian cargo. This may impact spot purchases, but analysts say long-term contracts may avoid the heat.
India has already started diversifying its energy portfolio for imports, seeking oil and LNG suppliers in the Middle East, Africa, and Brazil and Guyana for crude oil. In September 2024, ADNOC (Abu Dhabi National Oil Company) entered into a 15-year agreement to supply Indian Oil with 1 million metric tons of LNG per year, primarily from ADNOC’s Ruwais LNG project.
As the US intensifies its sanctions, both the EU and India must diversify energy sources to ensure stability and sustainability in their energy imports.