COLUMN-Europe will struggle to wean itself off Russian gas: Bousso

By Ron Bousso

LONDON, May 14 (Reuters) - Europe is on track to replenish its depleted natural gas storage network using almost no Russian pipeline supplies for the first time ever. But the region's plans to completely phase out Russian gas still look like a daunting challenge.

While EU imports of Russian gas via pipelines have plummeted since the invasion of Ukraine in February 2022, around 19% of the bloc’s gas imports still comes from Russia through liquefied natural gas imports and via the TurkStream pipeline into central Europe.

But the bloc appears serious about changing this. The European Union last week released a roadmap for fully phasing out Russian oil and gas imports, and the European Commission next month will propose legal measures to ban remaining Russian pipeline gas and LNG imports under existing contracts by the end of 2027. The EU executive body will also propose a ban on new deals for Russian gas and existing spot contracts by the end of 2025.

At first glance, Europe looks fairly well positioned for this shift, as gas markets are currently enjoying a relatively serene period following a tricky winter.

Particularly cold weather coupled with the termination of the last major pipeline delivering Russian gas into the region led to a sharp draw in Europe's stocks. At the same time, rigid EU rules requiring traders to fill storage levels to 90% by the start of November created distortions in regional gas pricing.

But a surge in LNG imports in recent months and warmer weather have allowed traders to start the long process of refilling the region’s vast underground storage network.

Storage reached 43% of capacity by May 11, recovering from a seasonal low of 35% at the end of March, according to Gas Infrastructure Europe, though the current level is down roughly a third from the same month last year.

At the current gas injection rate, storage is likely to reach 90% by late September, according to Reuters calculations.

The easing of concerns over European stocks, along with rising LNG production and weakening Asian demand have also led to a sharp drop in benchmark European TTF gas prices to around 35 euros per megawatt hour from a three-year high of 58 euros/MWh on February 10.

EASTERN FRONT

So is the bloc’s plan for phasing out Russian energy a done deal?

Unfortunately, things aren't all quiet on Europe's eastern front.

First of all, member states Slovakia and Hungary, which rely on Russian oil and gas supplies and whose leaders are friendly with Russian President Vladimir Putin, have vehemently opposed the proposed ban.

True, the Commission's proposal only requires a qualified majority in the European Parliament to pass, meaning that the two central European states would not be able to block it. But their objections could complicate the process.

The proposal could also face resistance from an unexpected source: U.S. President Donald Trump, who has been pushing for a peace deal between Russia and Ukraine. And as part of any deal, Russia could seek to revive – or at least maintain – some of its gas sales to Europe, which has historically been its most important oil and gas market.

That might be a long shot. European Energy Commissioner Dan Jorgensen has said the bloc would not revive its imports after any potential deal. But Trump, eager to clinch a deal, could press Europe to acquiesce on this point.

Fully cutting off Russian gas supplies may also prove tricky because of how concentrated the LNG market is.

Russia reached around 15% of Europe’s total LNG imports in the first four months of this year, making it the second-largest supplier behind the United States, which accounted for around 55% of supplies.

Banning Russian LNG would thus heavily increase Europe's reliance on U.S. supplies. Dependency of this scale – potentially 70% of the region’s LNG imports - could prove risky in the event of supply disruptions such as hurricanes and floods along the U.S. Gulf Coast, where the vast majority of U.S. LNG is produced.

And the EU would essentially be swapping dependency on Russia for overreliance on the United States, at a time when the U.S. has become a much less reliable partner.

On the other hand, replacing Russia's significant share of LNG imports could be made easier by an expected surge in supply over the next decade from project startups, particularly in the United States and Qatar.

Additionally, the expected decline in European gas consumption due to the rapid growth in renewables and the contraction in energy-intensive industries could make the transition away from Russian gas less painful.

Ultimately, Europe may find that slashing reliance on Russian pipeline gas was one thing, but completely decoupling from Russian energy supply may end up being a much tougher challenge.

** The opinions expressed here are those of the author, a columnist for Reuters. **

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