INTERVIEW: Russian gas import ban may be ‘considered’ – European Commission vice-president

Banning Russian gas exports to Europe might become “a subject for consideration” as the EU is focusing on potentially approving other sanctions against Russia, the vice-president of the European Commission for interinstitutional relations Maros Sefcovic told ICIS in an exclusive interview on 9 June.

He said EU countries have proven over the last year they can manage without Russian gas but added that any measures that might be taken would have to be considered and executed with “great care.”

Banning Russian gas “might become another subject of our consideration because at this time we are focusing on making sure there is another package of sanctions that is being approved,” the vice-president said.

“If there are further steps in that direction it’s difficult to say now but we clearly have proven we can manage without Russian gas.”

Since the start of Russia’s invasion of Ukraine last year, Russia has reduced its pipeline gas supplies to European buyers by more than 80%, raising questions whether to ban pipeline supplies ahead of the phase-out date proposed by the EU in 2027.

In an exclusive interview with ICIS, Walter Boltz, energy advisor to the Austrian government, said pipeline volumes could be banned as early as this year.

Sefcovic said: “The phasing out of Russian gas will happen sooner or later even without having any explicit language in that regard. […] Of course, when we say we are phasing out Russian gas, we mean all of it but the question is how are we going to check it, how are we going to control it? LNG is a different animal from pipeline gas. We have to look through with great care to ensure that if we propose something it’s properly executed.”

Sefcovic said the Commission is constantly monitoring the circumvention of sanctions on other commodities such as oil.

He said one of the critical measures adopted over the last year was the introduction of a requirement asking companies which subscribed to the newly-launched AggregateEU platform to sign a declaration of honour guaranteeing they would not trade Russian gas.

AGGREGATEEU

The AggregateEU platform was launched by the EU last year in a bid to boost security of supply in Europe and ensure consumers have access to cheaper gas prices.

The first tender was held in May and new bids and offers are expected from buyers and suppliers between 26 June and 10 July, as confirmed by Sefcovic in a speech held on 9 June.

Sefcovic, who was also commissioner for energy and has been spearheading AggregateEU, said the demand for gas via the platform was “impressive” noting that in Energy Community contracting parties such as Moldova and Ukraine, which were also invited to participate, buyers and sellers were matched 100% and 80% respectively.

One of the concerns raised by traders was that the new platform may help them secure below-market prices since participants would still compete with each other for supplies.

GAS PRICES

However, Sefcovic said he received confirmation from colleagues in an Eastern European country that companies could secure prices below market levels.

“I got a political assessment from a colleague from an Eastern European country who said what they got was significantly better priced than what they were getting on the market. He said if they we had more resources they could buy much more.”

Following Russia’s invasion of Ukraine and the drop in Russian exports, gas deliveries have reversed their historical direction, flowing West to East.

This has put landlocked central and eastern European countries, which cannot access LNG, at a premium over western European countries with access to the sea.

LNG

Sefcovic said the Commission was also working to ensure that more buyers, including those in landlocked countries have access to LNG.

“The demand for gas [via AggregateEU] was impressive but it was a bit atomised. We are trying to work closely with companies which want to act as central buyers.

“The advantage of the platform is that smaller volumes can be grouped together and presented to LNG suppliers because they have to work with cargoes and they need to find a landing point,” he explained.

Sefcovic did not comment on whether the new arrangements implemented via AggregateEU could replace the existing internal gas market.

However, he said that since the start of the war and last year’s energy crisis, ‘structural changes have happened, are ongoing and will continue,’ noting that one of the most critical structural changes to date is the phase-out of Russian imports.

UKRAINE WAR RISK INSURANCE

The loss of Russian transit may also impact Ukraine, the historical corridor for Russian supplies to Europe, as the country is contemplating securing a new role in Europe’s energy market once the existing transit contract expires at the end of 2024.

The EU is currently working with Ukrainian stakeholders, European traders and western political allies to establish a war risk insurance that would allow companies to inject gas in Ukraine’s vast storage facilities, Sefcovic said.

The country has over 25bcm of capacity of which 10bcm can be used by European companies.

However, the war and political risk associated with Ukraine is deterring some traders from injecting and storing gas in the country.

“It’s clear [that because of the war in Ukraine] we cannot rely any longer on the usual model of insurance and reinsurance,” Sefcovic said.

He conceded that Ukraine’s storage capacity would be a “strategic asset” for European energy security and admitted that any insurance that would be put in place would require political support.

“We are now trying to look into the matter how we can compose that insurance package which would simply allow the traders to go in and use this very important Ukrainian facility.

“It will be very difficult to do it just by one institution. We are talking to our international financial institutions, our EU banks, and also to member states’ promotional banks as well as traders.

“We need to have some kind of shared risk to lower the risk premium for everyone,” he added, noting the Commission was working to get a relevant instrument as soon as possible but he could not give an exact time frame. Aura Sabadus