The European Commission has proposed sanctions for the lucrative liquefied natural gas industry in Russia for the first time. The proposed sanctions are expected to impact around a quarter of Russia’s liquefied natural gas revenue and include measures to further strengthen efforts to combat evasion of EU sanctions.
According to a report from Politico Europe on Monday, based on the contents of the obtained documents, these sanctions would block EU countries from buying Russian liquefied natural gas for export but would not directly prohibit Russia from exporting liquefied natural gas to the EU.
EU member state representatives are set to discuss these proposals on Wednesday. While major EU countries like Germany and Italy have increasingly shown political support for curbing Russian liquefied natural gas, Hungary, which heavily relies on Russian energy, has consistently opposed all gas sanctions.
The sanctions would also prevent the EU from participating in upcoming liquefied natural gas projects in Russia. The proposal argues that “such measures restrict the expansion of Russian liquefied natural gas production capacity, thereby limiting Russia’s revenue.”
Furthermore, the European Commission hopes to encourage companies to share more information on Moscow’s liquefied natural gas imports.
This move marks the EU’s first targeting of Moscow’s profitable gas industry and is part of the 14th set of sanctions imposed on Russia by Brussels following its invasion of Ukraine.
While the sanctions on liquefied natural gas signify a significant shift in EU strategy, the proposed punitive measures would only affect a small portion of Russia’s fossil fuel revenue. Last year, the resale of Moscow’s liquefied natural gas by the EU accounted for just one-quarter of Russia’s total natural gas trade revenue.
Citing estimates from Petras Katinas, an energy analyst at the Center for Energy and Clean Air (CREA), Politico Europe reports that based on last year’s data, this change could reduce Russia’s liquefied natural gas revenue by €2 billion, representing 28% of the profit.
Since the outbreak of the Russia-Ukraine war, EU imports of Russian natural gas have decreased by about two-thirds due to Moscow’s supply cuts, with countries turning to Norway and the US as alternatives. Nevertheless, this has still generated around €8 billion in revenue for the Kremlin.
The proposed sanctions would compel Moscow to radically alter its liquefied natural gas business model, especially in supplying to Asia through Europe, with Spain, Belgium, and France serving as key hubs. Without these countries as transit points, Russia would have to transport liquefied natural gas to Asia via the Arctic Ocean, requiring specialized ice-breaking ships that are currently in short supply.
The EU also aims to target a significant aspect of Russia’s evasion strategy – the “shadow fleet” of old ships with unclear ownership and insurance bought in large quantities to evade Western oil sanctions.
The European Commission seeks to prohibit EU ports from aiding ships involved in “energy transport activities contrary to the goal of reducing Russia’s income in this sector.” Additionally, the commission recommends banning these ships from receiving EU services or financial assistance.