Auditors warn of LNG dependency after Russian sources cut off

AP

The successful phasing-out of gas imports from Russia risks making Europe dependent on liquified natural gas (LNG) imports, according to a report published by the European Court of Auditors (ECA) today (June 24) .

Between 2021 and 2022, LNG imports increased from 80 billion cubic meters (bcm) to 120 bcm — reflecting an increase from 22% to 34% of total gas imports including from Russia and pipeline — according to the ECA. By 2023, the largest LNG global exporters to the EU were Norway (30%), the US (19.4%) and North Africa (14.1%), Russia was still responsible for 6.1% of LNG imports alongside 8.7% via pipeline, according to EU data.

The risk of LNG dependency was considered by the European Commission when modelling the impact of cutting back Russian gas supplies in 2014, when Moscow annexed Crimea, the EU auditors found.

But the EU executive “never modelled or estimated the extent of such LNG price increases or their impact on consumers and competitiveness”, ECA auditors said.

“Given the EU’s dependence on foreign gas, it can never be complacent about its security of supply. And consumers do not have any affordability guarantees in the event of a major future shortage,” said Joāo Leāo, the ECA member responsible for the audit.

The EU imports over 80% of its natural gas and Russian gas accounted for 45% of all EU gas imports in 2021, the last year before Russia’s invasion of Ukraine, creating a supply crisis that led to an affordability crisis — gas prices reached a peak of €339 per megawatt-hour (MWh), compared to €51 per MWh, in August 2022 and the same month in 2021, ECA figures revealed.

Prices stabilised at an average of approximately €45/MWh in late 2023, ECA said, still at double pre-crisis levels. Nonetheless, ECA found that the EU’s work to ensure a secure level of gas supply to be “unequal” across member states and that the results of crisis-response goals “often cannot be demonstrated”.

Today’s 14th EU package of sanctions against Russia targeted Russian LNG, but only where imports are transited on for resale.

“This covers both ship-to-ship transfers and ship-to-shore transfers, as well as re-loading operations, and does not affect import but only re-export to third countries via the EU,” according to an EU Council press statement.

Carbon capture

ECA’s report also recommends the EU to come up with decarbonisation measures for carbon capture storage and utilisation (CCUS) in light of the energy and climate transition, as EU auditors expect the EU to still need “substantial amounts of natural gas in 2040 for energy-intensive industries” and to date has identified only four commercial CCUS projects operating in the EU with an output of 1.5m tonnes of CO2 captured annually.

EU auditors also called for “improved transparency” in the way energy infrastructure projects connecting EU countries with each other — the so-called Projects of Common Interest (PCIs) — are selected, describing them as “complex”, with “many assessments and steps” and “various investors”.

A total of €1.6 billion was awarded to 40 gas PCIs between 2014 and 2020, 18 of which received funding for construction, according to ECA.

“We found project outcomes to be unclear, making it difficult to assess the implementation rate of PCIs and the added value of a project being a PCI... We found a number of issues with this process, from which lessons can be learnt for the future selection of hydrogen PCIs,” the report found.