This is the first time since the invasion of Ukraine that Moscow has been targeted for its pipeline exports.
According to officials involved in negotiations, the G7 and EU have agreed to ban Russian gas imports from routes where Moscow has reduced supplies. This is the first time that western powers have blocked pipeline gas trade since the invasion of Ukraine.
The G7 leaders will finalise the decision at their summit in Hiroshima, Japan, this week. This decision will prevent the return of Russian pipeline gas to countries like Poland and Germany. Last year, Moscow had cut off supply and caused an energy crisis throughout Europe.
The West wants to make sure that Russia doesn’t receive an increase in its energy revenue as it attempts to increase economic pressure 15 month after Moscow’s invasion of Ukraine.
The official, who spoke under condition of anonymity said that the move was made “to ensure that partners do not change their minds in a hypothetical scenario”.
The draft G7 statement stated that the G7 group of leading economies will further reduce their use Russian energy sources, “including preventing reopening avenues previously closed down by Russia’s weaponsisation of energy”, at least until there is “a resolution to the conflict”.
Unknown to the G7, a European official said that he believed the move was partly intended to give investors confidence to support LNG infrastructure projects in Europe and North America by eliminating the fear of a rapid return of cheaper Russian natural gas.
The measures will not affect gas supplies immediately, but they do show that Brussels is determined to end its decades-long reliance on Russian oil and energy.
The ban is a highly symbolic one, as the EU did not target pipelines at the beginning of the war due to their dependence on Moscow for gas. Russia cut gas supplies regardless, causing prices to rise by more than 10x their normal levels.
Prices have dropped significantly in recent months as Europe has successfully reduced demand during winter, increased the use of renewable energy sources and found alternative supplies like seaborne LNG cargoes.
The share of gas imported by Europe from Moscow has dropped from over 40% to less than 10%. A mild winter in the EU has also helped increase gas storage.
Gas storage is expected to reach its capacity well before winter 2022. It’s already about 60% full, compared to roughly 30% at that time in 2012.
Tom Marzec Manser, energy consultant at ICIS, said: “With European Gas Storage unusually High for this Time of Year and Wholesale Prices inching Back to What Might Just Be Considered Their Normal Price-Range. You can understand why Europe’s leaders are confident that this plan won’t sabotage security of supply anytime soon.”
It’s important to not become complacent about the European Gas Market outlook.
EU measures could also block oil pipelines in which Russia has stopped supplying, such as the northern portion of the Druzhba Line that supplies refineries to Germany and Poland.
Diplomats are discussing the embargo as part of EU’s eleventh sanctions package. The Commission said that it would not comment upon discussions of sanctions or leaks.
Un EU diplomat stated that Brussels needed to clarify the proposal in order to demonstrate how the “status-quo” would be changed, especially since some oil from Kazakhstan is flowing through Druzhba. They said that it was important to know exactly how the plan would work.
Berlin and Warsaw, even though they were exempt from Russian sanctions, announced that, last year, they would end crude deliveries through Druzhba. Poland, however, continued to receive oil until Russia stopped the flow in February. German refineries have stopped buying Russian crude since the start of this year, despite being exempt from sanctions on Russian oil.
Last year, one of the four main Russian gas pipelines that supply Europe — the Nord Stream 1, 2pipelines – was sabotaged. Other pipelines, such as the Yamal to Poland line, remain intact.