In response to Russia’s unprovoked invasion of Ukraine, the EU rolled out a number of sanctions targeting the Russian economy. Until the 14th sanctions package, none included restrictions on Russian pipeline gas or LNG. In June 2024, the 14th sanction package forbade:
- Reloading and transshipment of Russian LNG at European terminals, and
- Delivery of Russian LNG to terminals not connected to the interconnected natural gas system.
In detail, Council Decision 2024/1744 defines the transshipment activity as any direct or indirect technical assistance, brokering services, financing, or financial assistance related to the reloading of natural gas originating in or exported from Russia (Article 4w). Additionally, Council Regulation 2024/1745 adds a prohibition on importing LNG to terminals not linked to the European transmission system. This restriction was initiated by Finland and Sweden, which have most of the small-scale off-grid LNG terminals. In addition to the Finnish and Swedish terminals, Malta’s Delimara FSRU and Spain’s El Musel terminal are also affected by this ban. However, these facilities are not the usual destinations for Russian cargoes.
Besides limiting the revenues of Russia, the sanction may have broader effects on global gas markets, affecting LNG and other gas trade flows in Europe. Applying our European Gas Market Model (EGMM), we aim to capture the effects of the sanctions on the European market as well as the sales and revenues of Russia.
A number of experts have already commented on these sanctions. OIES pointed out that the sanctions will not decrease the Russian LNG volumes to Europe and may increase the Russian LNG sales, and limit the availability of Yamal LNG. Arbeola noted that the sanctions strongly disrupt the logistics chain set up to deliver Yamal LNG cargoes year-round to Asian markets, thus limiting the availability of the terminal without hurting the European market. Timera Energy claimed that an EU ban on transshipments forces the Russian LNG fleet to take longer journeys and tie up the carriers, inhibiting the ability to sustain a full loading program of the terminal and constraining utilization. Building on the findings from these brief analyses, our paper aims to model the impact of sanctions and quantify the effects on volumes and trade.
This paper is structured as follows: First, a "without sanctions" case is calibrated to 2023 Q2-Q4/2024 Q1 market conditions. Second, we formulate the constraints of the Council Decisions for the model and identify a number of scenarios of how the sanctions could play out. Third, model results are compared to the "without sanctions" case, focusing on LNG flows to Europe, revenues and sales of Russia, and the cost of gas procurement for the EU. Finally, we summarize our main findings from the modeling.